In 2017, US Congress passed the Tax Cuts and Jobs Acts. This made significant changes to an individual’s income tax rates in various brackets, and also reduces rates for corporations. The law took full effect in Jan. 1, 2019, and it’s affecting several sectors in the state—especially families that are going through divorces.
Contractual alimonies are common among couples in Texas. Before the new tax law was passed, this meant that the higher-earning partner would have to deduct alimony payments according to their tax rate. While the lower-earning partner pays tax based on their tax based on the gross amount of the alimony received by the high-earner.
However, it’s also important to note that any alimony paid from a final order before January 2019 will still be taxable to the payee and deductible by the payor.
That said, what do ex-spouses need to know about dealing with their tax situations during and after their divorce? Take note of the pointers below.
While in the process of divorce
Before TCJA was passed, Texas couples could choose whether they can file joint or separate taxes. If they were married on or after Dec. 31, 2018, they are now required to file joint tax returns. This is important to remember because couples still need to pay this until the judge officially grants their divorce.
Of course, couples can choose to file separately so they won’t have to deal with any issues with their soon-to-be ex-spouse’s tax returns. Divorce attorneys can also help in managing how to deductible costs from the couple’s alimony (if they have one). Especially with the new law which might make the process more expensive and difficult.
This is also a great time for couples to agree on settlements on real estate and other joint properties they may have. They should also check for any existing debts as dividing properties might become more stressful if these aren’t resolved.
After the divorce is granted
It’s recommended for couples to speak with a lawyer or an expert who will help with their taxes moving forward. It doesn’t matter if the divorcees have joint or separate taxes, they need to be able to budget for their own, as well as their children if they have any.
Divorcees who still pay joint tax returns should always keep track of their deductibles, among others. No one wants to see their ex-spouse abuse the money.
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