The potential tax consequences of divorce

On behalf of Stange Law Firm, PC posted in divorce on Tuesday, February 11, 2020.

Individuals in Kansas and throughout the United States whose divorces were finalized after Dec. 31, 2018, don’t need to claim alimony payments as income. Conversely, those making the alimony payments doesn’t get a tax break for doing so. If a person doesn’t have to claim alimony as income, it may be easier to qualify for public services or generous health insurance subsidies. However, that person is not allowed to contribute alimony payments to an IRA.

This may have an impact on the recipient’s ability to retire. Furthermore, if alimony is transferred from the payor’s retirement account, that person won’t need to pay taxes on the withdrawal. Instead, the person who receives the funds will pay taxes on the amount withdrawn. Parents can no longer take a tax exemption for their dependents, but they may be entitled to a $2,000 credit for each child that they have who is under the age of 17.

Those who have children over the age of 17 who are still considered dependents could be able to claim a $500 credit per child. Ultimately, credits can be more beneficial because they reduce the taxes owed instead of taxable income. The divorce decree will likely stipulate who gets to take the credit and when it must be claimed by.

Anyone who is going through a divorce may be able to rely on a family law attorney to discuss the potential tax consequences of doing so. This may help a person make an educated decision when it comes to how a settlement is structured.

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