The foundations for divorce, alimony and baby profit have modified

Are you thinking of breaking up with your spouse? The 2017 tax overhaul made things more complicated.

For recently divorced Americans, alimony payments for the payer are no longer tax deductible, and they are not considered taxable income for the person receiving them, ending decades of practice. The changes affect divorce agreements signed after December 31, 2018.

Divorce can “have a pretty significant impact on individual income earnings,” says Katie Prentke English, co-founder of Harness Wealth, a New York-based digital platform that helps individuals find financial, tax and legal advisors .

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In the opinion of tax professionals, most of the tax changes benefit people who receive maintenance, as they are no longer required to claim maintenance as income and do not pay taxes on them.

This could also affect social programs that dependents are qualified for as their income appears lower than it actually is. If they’re not required to report health care maintenance incomes, their incomes will be lower and they could potentially get a better subsidy, experts say.

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The changes in tax codes also affect IRAs. According to English, if a spouse paying child support transfers money from their individual retirement account to be used as a child support, those funds will no longer be taxed upon withdrawal. The receiving spouse then pays tax on this money once they have received it.

The new rules could limit how dependents keep money for retirement.

“For recipients, maintenance payments cannot be invested in an IRA, which can be problematic for a partner who is not working and whose entire income comes from maintenance,” says English.

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The new tax law also has an impact on divorce costs. Spouses can no longer deduct legal costs or divorce costs as before. These are now legally considered personal expenses. And child support payments are not deductible by the payer or taxable for the recipient.

Prior to 2018, applicants were allowed to claim dependency dependencies for children. However, these exceptions can no longer be used. Previously, for each child they supported, parents could apply for a dependency exemption, which acted like a tax deduction by reducing their taxable income.

But there is still good news. According to David DuFault, a Sodoma Law attorney in Charlotte, North Carolina, a person with children under the age of 17 may still be able to claim the tax credit for $ 2,000 per child. And if a parent is still supporting a child over 17, they could apply for a dependent loan of up to $ 500, he says.

A tax credit is generally better than a deduction because a deduction will only reduce your income, while a tax credit will reduce the tax you owe, DuFault explains.

“People need to make sure they take advantage of these child tax credits as we no longer have dependency exemptions,” says DuFault. “Be aware of any provisions in your separation and divorce papers that state who can apply for these credits and when.”

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