Last week in, Getting Married and Your Taxes, we explored what to do with your taxes as you tie the knot. But what do we need to consider when saying, “I Don’t”? Among the changes seen with the December 2017 passing of the Tax Cut and Jobs Act (TCJA) are impacts to couples who divorce after 2018. We discussed the Tax Cuts and Jobs Act in September and shared financial tips for those going through divorce in July with Starting Over After Divorce. Here we will take a more indepth look at the specific changes the TCJA means to divorced taxpayers, along with financial considerations from a tax perspective.
The TCJA plans to raise billions in revenue for the government over the next several years. To do so, many groups have been affected including those filing for divorce after the end of 2018. For nearly a century, a deduction has been allowed to the spouse paying alimony. For all divorces finalized beginning January 1, 2019, alimony will not be tax deductible. This could have the unfortunate consequence of leading to spouses not agreeing to paying alimony or settling for a much lower payment. Most often, alimony is paid to the woman in the divorce. This tax change will therefore have a major impact on the financial livelihood and future of women.
An additional unfortunate consequence of this change is that many couples are speeding up divorces to be sure that they are completed prior to the end of 2018. This can lead to hasty decision making and not keeping everyone’s best interest in mind.
There are additional tax considerations to make when filing for a divorce beyond those relevant to the TCJA. Start to create your own statement of personal worth. To do so, gather paperwork for all of your assets and accounts. This year would be a good one to call upon a professional tax preparer to help with your annual tax returns.
If you are planning to sell your home, it is best to do so while your still married for tax purposes if the home value has increased by more than $250,000. Capital gains up to $500,000 are tax exempt for those filing as married but only up to $250,000 for single filers.
It is just as important to report address and name changes to employers, the IRS, and the post office when you get divorced as it is when you get married. Make changes with your employer if your W4 withholdings change. Many of the considerations for newly wed couples apply in cases of divorce.
Going through a divorce hurts, but being prepared financially can take a little bit of the sting out. Let our office know if you need help with tax questions during this difficult time. We are here to help!