If you’ve read the news lately, then you know that tax law is changing! On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act, which makes some pretty major changes to tax law here in the U.S., specifically as it relates to alimony and how it’s taxed.
Not sure what that means? Well, starting in 2019, spouses who are paying alimony won’t be able to take a deduction, and spouses receiving alimony won’t have to report the alimony they receive as income!
So yes – major changes are coming down the pipe.
However, for this last tax season before the changes go into effect, the rules are still the same as they have been for several years now. Not sure about what those are? Need a quick refresher course on what you are entitled to under current tax laws? No problem, we’ve got you covered. Here are four important points to remember when filing this year:
Your Alimony Received
If you get alimony (also called spousal support) from your spouse or former spouse, it’s taxable in the year you that you receive it. Alimony is not, however, subject to tax withholding, which means that you might have needed to increase the taxes you paid during the last year to avoid a penalty at tax time. Not sure what we mean by that? Well, one option would have been that you could have made estimated tax payments throughout the year. Another would have been to increase the amount of tax withheld from your wages. But remember, this won’t be an issue next year!
Your Alimony Paid Out
You can usually deduct alimony paid to a spouse or former spouse under a divorce or separation decree, regardless of whether you itemize deductions or not. (Although this is the last year where this is possible!) However, even now voluntary payments made outside a divorce or separation decree are not deductible. Also, it’s important to remember that you must enter your spouse’s Social Security Number or Individual Taxpayer Identification Number on your Form 1040 when you file your taxes.
Dealing With Name Changes
If you get divorced and choose to change your name, you’ll need to notify the Social Security Administration. You’ll need to file Form SS-5 (Application for a Social Security Card) in order to apply for a social security card in your new name. You can find out more about the application process from the Social Security Administration’s website, or call 800-772-1213. The name on your tax return MUST match the name on your social security record. A mismatched name can cause problems with your tax return, which might mean improper processing of your return and delayed refunds.
Spousal IRA Accounts After Divorce
If you get divorced, or the court grants you a separate maintenance decree by the end of the tax year, you can’t deduct any contributions that you made to your former spouse’s traditional IRA. However, you might be able to deduct contributions that you made to your own traditional IRA. If you have a non-traditional IRA account (like a self directed IRA) you should speak to a Certified Public Accountant for financial advice on what you can and can’t do about that.
Are considering a divorce in Michigan in 2018?
Because of the coming changes in tax law, some family law attorneys are saying that there may be a rise in divorces in 2018. Why? Because the new tax laws affecting alimony don’t go into effect until next year and any divorces finalized before the end of 2018 will still be be bound by the old tax code. In other words, people who get divorced and end up having to pay alimony before the new law kicks in, will still be able to use those payments as an income tax deduction.
If you or a loved one are considering divorce, and are concerned about how the new law will affect your alimony agreement, call The Kronzek Firm at 866 766 5245. Divorce is always a difficult process, and alimony orders can add to the complications. So don’t try to deal with spousal support orders on your own. Always hire a skilled family law attorney to advocate on your behalf, and help you come to a fair arrangement. We are available 24/7 to help you prepare for your best financial future after divorce.