By Melissa Rister, CPA, CDFA at Peskind Law Firm
There has been a lot of concern and excitement surrounding the new tax laws. Here are several changes that could impact already divorced couples or those considering a divorce in the future:
- Net Incomes are changing. Standard deductions have been increased while the deductions for dependents have been eliminated. There are caps on the amounts allowed on common deductions like mortgage interest, state and local taxes paid. Tax brackets and tax rates have changed. All of this amounts to a sometimes significant change in the after-tax or “net income” for some people, especially those with higher income levels. Because the state of Illinois support guidelines base child support on “net” income of the parents, there could be a significant impact on the calculations for child support.
- Child Tax Credit has been expanded . The deduction for children in divorce is usually an issue resolved in negotiation and often times is alternated between the parents. While the deduction goes away, it will still be relevant to determine a schedule for claiming the children because the child tax credit is directly related to who claims them on the tax return. Going forward, the credit is $2,000 per eligible dependent. Single filers with an income up to $200,000 and married filiers with an income up to $400,000 will qualify for this benefit. This is up from the previous limitations of $75,000 for single and $110,000 for married filers.
- Expanded Use of 529 plans: For families that have 529 plans for college savings, the new law expands the use of these funds for additional educational expenses for their children.
- Alimony deductions go Away in 2019: For couples signing divorce decrees after January 1, 2019, the payment of alimony is no longer deductible to the payor or taxable to the payee. This will be a significant factor in the negotiation of payments starting in 2019, but all divorces signed previously will not be impacted by the new laws. This is also the case if alimony payments change in the future via a post-decree action; i.e. if the payment was previously deductible, it will remain deductible in the future.
The staff at Peskind Law Firm is available to help you review your current situation and determine if the new laws have a significant impact in your particular situation.