I’ve received a few questions about the newly announced Tax Cuts and Jobs Act. My initial advice is – don’t worry about it…yet. Like all proposed bills in Congress, the lobbyists will take their shots, the bill will change, and there is no guarantee any version of it will become law. If it does pass exactly as currently written, what impacts does this non-CPA see for many divorced and widowed women?
Alimony Changes (But Yours May Not)
Alimony payments to an ex-spouse could lose the tax deduction they currently receive. Thus, part of the alimony payment would now have to go to the IRS instead of to the ex-spouse receiving the benefit. Eliminating what Ways and Means Committee documents refer to as a “divorce subsidy” will affect the dividing of assets in a divorce and could mean less for both parties. Thankfully, this potential change only affects divorces enacted after the end of 2017. If you are currently receiving alimony, this does not impact you.
Your Tax Preparataion May Be Harder. Or Easier. Or Both.
The bill proposes raising what’s known as the “standard deduction” up to $12,000 for individuals and $24,000 for married couples. If your itemized deductions don’t add up to these numbers, it would be better to take the standard deduction. This scenario is even more likely if you rely on the deduction of medical expenses (if they are more than 7.5% of your adjusted gross income), since the bill eliminates that deduction. This is where the politicians came up with their “more people can file on a postcard” analogy. However, the postcard might be more expensive than your previous tax bills!
It’s Not All Doom and Gloom
There are some nice things in the bill as well:
- Child tax credits would rise to $1,600 from $1,000;
- There will also be an additional $300 credit for any parent or non-child dependent that you claim;
- Fewer tax brackets might mean you have a lower federal tax bill on your income; and
- Proposed changes to taxation on 401k’s are not included in the bill.
The bottom line – death and taxes are still certain. Pay attention to what is being proposed, and voice your opinion where you can. Whatever the final outcome is, we can work together to make the best of the game’s rules.