Arizona couples who want to take advantage of the alimony tax deduction should mark their calendars.
December 31, 2018 could be an important date on the calendars of many people both in Arizona and across the country who are considering getting divorced. That is the last day that divorcing couples will be able to qualify for the longstanding alimony tax deduction. As CNBC reports, as part of the tax reform law signed by President Trump in December 2017, the alimony tax deduction is being eliminated for all divorces that are finalized after the end of 2018. The change is expected to have a major impact on not only alimony amounts, but also on how divorces are negotiated.
Meeting the deadline
The Tax Cuts and Jobs Act eliminates the alimony tax deduction for all divorces that are concluded after December 31, 2018. That deduction has allowed the paying party to deduct their alimony payments on their taxes, thus lightening the financial burden of the payments. Recipients, meanwhile, have been required to declare alimony payments as taxable income. Beginning January 1, 2019, recipients will no longer have to pay taxes on alimony and payors will no longer be able to deduct their payments.
Anybody who wants to take advantage of the tax deduction will have to act fast to ensure their divorce is concluded by the end-of-year deadline. As AZ Big Media points out, because Arizona has a 60-day cooling off period between filing the initial papers and receiving a final divorce decree, Arizona couples who want a divorce and would like to take advantage of the tax deduction should actually consider November 1 as the absolute final deadline for filing their divorce papers. Any divorce finalized before January 1, 2019 will still be treated according to the current tax rules.
Why are these changes important?
The elimination of the tax deduction will have a big impact on how alimony amounts are calculated. Because payors will no longer get a big deduction, they will have far less ability to pay larger alimony amounts. While recipients will get some relief because the alimony they receive will be tax-free, that relief will be limited. Payors are often in a higher tax bracket than recipients, meaning that the deduction usually represented a larger amount of money overall than what recipients paid in taxes. In other words, the elimination of the deduction will mean that more money that would have otherwise been earmarked for alimony will instead go towards taxes.
In turn, the higher tax burden on alimony payments will mean that divorce negotiations overall could become more contentious. With less money on the table, divorcing couples may feel more pressure to pursue their cases through litigation rather than over the negotiating table.
Family law help
Divorce is an extremely difficult experience for most couples, regardless of how amicable their separation may seem. A family law attorney can help those who are considering divorce understand what their options are. With an experienced attorney on hand, those going through divorce will have an advocate on their side fighting for their best interests.