The Republican Tax Bill brings sweeping changes to the nation’s tax code. As the country adjusts to the revisions and comes to understand the implications, we take some time to highlight the immediate impact this law will have on families –both intact and those who are facing divorce. Follow this blog for more details later.
Revisions in the tax code will affect:
EDUCATION: 529 accounts are expanded to include private school and home schooling.
Currently families can save for children’s college education with the use of tax protected 529 accounts. In a 529 account your money grows free of any capital gains taxes and currently it can be withdrawn without any penalty to pay for higher education expenses. Under the new bill, the use for money in 529 accounts is expanded. You now will be able to withdraw up to $10,000.00 per child, per year, to pay for private school or for educational expenses that are used for home schooling. Money that is in a 529 account also may be rolled over to ABLE accounts, which are used for people with disabilities.
ALIMONY: Alimony is no longer deductible for the payor spouse and no longer taxed to the recipient spouse.
This change in the tax provision regarding alimony does not go into effect until 2019; however, parties in the midst of divorce must be aware of it now as it may have a significant effect on negotiations in equitable distribution agreements. Understanding the effect of this dramatic change in the tax implications of alimony is important. If you currently are receiving or paying alimony your agreement may be modified with certain specific language to comply with the new tax rule. Your attorney should have access to the modification language.
THE CHILD TAX CREDIT: The child tax credit increases from $1000. to $2000. per child.
Families that are separating or divorcing often negotiate around who gets to take the child tax credit. This becomes more significant as the credit increases. Parties should consider how to allocate and/or share the child tax credit. Discussions should include where the children live, how many children there are in the family, and how best the credit can be used and how to maximize its’ advantage.
THE STANDARD DEDUCTION AND EXEMPTIONS: The standard deduction nearly doubles for both individuals and married couples.
The result on bottom line of the change in the deduction and exemptions will have important implications for persons who are deciding what status to us when filing their taxes, during the period of separation, or in the year of divorce.
To learn more about how the new tax bill may affect you, we recommend contacting your accountant or tax attorney. Nothing in this column should be considered tax advice. If you are contemplating or are in the midst of a divorce, be sure to discuss these items with your attorney. If you have questions and wish a consultation with Bookspan Family Law, LLC, please call 610 565 6200