If you are in the middle of a divorce, now is one of the most important times for you to protect your finances. Spousal support can become burdensome for the person who has to pay, so your wallet may be more vulnerable than ever before.
Matters become more complicated when you throw federal tax policies into the mix. There was a time when the type of support you were giving determined your taxes, but there are many forms of payment that the IRS no longer distinguishes between. Understanding the ramifications can help you plan ahead.
Under the Tax Cuts and Jobs Act, you can no longer deduct your alimony payments from your taxable income. Also, your ex-spouse will not have to factor the payments in as his or her income when tax season rolls around. Alimony payments can go on for years, may be very costly and no longer provide any tax incentive. This is why you should ensure that you are only paying what your ex needs.
The child support you pay is not tax-deductible either nor is it included in your ex’s taxable income. This has been the case even before the Tax Cuts and Jobs Act. If a court orders you to pay child support, you should make sure that your ex intends to use your money appropriately.
You should not go along with just any divorce settlement in hopes that some factors will help you with taxes. The sole purpose of spousal support is to satisfy your family’s needs.