Many Californians who find themselves in an unhappy marriage may eager to end their union as quickly as possible. However, changes in U.S. tax laws that will become effective January 1, 2019, may make finalizing one’s divorce before the New Year especially attractive. The following is a brief overview of some of these changes.
One change in tax laws will have a significant impact on spousal support. Currently, if a person pays spousal support, they can deduct these payments on their federal income taxes, and those who receive spousal support must count it as income for income tax purposes. However, starting in January, those who pay spousal support will not be able to deduct these payments on their federal income taxes, and those who receive spousal support no longer must count it as taxable income. A divorced finalized by December 31, 2018 will continue to be subjected to the pre-2019 spousal support tax laws, so some may find it appealing to finalize their divorce by the end of the year.
Another change to tax laws beginning in 2019 may affect divorcing parents. When parents divorce, they will have to decide who will claim the child tax credit and who will claim the child as a dependent for tax purposes. Starting in 2019 and going until 2025, the $4,050 tax exemption for each child has been eliminated. However, the child tax credit has gone up two-fold, from $1,000 to $2,000. Parents will want to keep these changes in mind as they negotiate the terms of their divorce.
The new tax laws can have a significant effect on a divorcee’s entire future, so it is important to understand them. However, tax laws as they apply to divorce can be very complex and are a topic many people are not very knowledgeable about. Therefore, those who are wondering if they could benefit from finalizing their divorce before the New Year will want to seek professional guidance on the matter.