Hidden Surprises in the New Tax Law

February 27, 2018

Amidst the various changes in the new tax law is an almost unnoticed change in the tax brackets for different filing status'.  The so-called marriage penalty has been virtually eliminated from the tax brackets.   At the same time the cost of married filing separately is much lower than previously but some old rules remain to challenge us to plan carefully.  These and other changes have widespread implications for how divorce will be negotiated.

 

The effect of the new tax law can be summed up in 7 points:

 

  1. There is no longer a tax exemption for children.

  2. The Child Tax Credit is doubled to $2,000 per child under age 17.

  3. The phase out is now much higher ($200,000 per year) so the Child Tax Credit is available to many more people than before.

  4. The Child Tax Credit remains negotiable between the parents, so planning options are the same as previously.

  5. Head of Household filing status is now more valuable.  This makes discussion of divorcing before or after the end of the year  more important, as well as learning how both can qualify for this favorable filing status.

  6. Married filing jointly, single and married filing separately are more similar than ever before.

  7. Alimony rules change in 2019.  All agreements signed in 2018 fit under old alimony rules - alimony is deductible by payor and taxable income of payee.  Agreements signed in 2019 will not allow alimony to be deductible or reportable.

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