Going through a divorce in North Carolina can be complicated enough without having to understand changing tax laws regarding alimony. Recent reforms have led to new guidelines that impact how alimony is treated for tax purposes. If you are receiving or paying spousal support, here is what you should know.
Is Alimony Taxable Income in North Carolina?
Previously, alimony recipients had to include payments as taxable income, while the payer could deduct it. However, according to CPA, Dakota Gibson of Gibson Tax LLC. the Tax Cuts and Jobs Act established new guidelines for divorces finalized after December 31, 2018. The paying spouse can no longer deduct alimony from their income. Furthermore, the payments are not taxable as income for the receiving spouse.
How Do Alimony Tax Changes Influence Divorce Settlements?
In the past, alimony deductions would lower the collective tax burden for both parties, making negotiations slightly easier and facilitated negotiation in divorce mediation. But now, the full tax liability falls solely on the paying spouse. This shift may can lead to more contentious discussions about settlement, as the financial stakes are significantly higher without deductions.
What Should Alimony Recipients Do With Their Payments?
If you receive tax-free alimony, keep careful records of every payment date, amount, check number, and transaction ID. While not reported as income, records will be necessary if disagreements over payment frequency/totals arise later. Save this documentation along with your divorce decree should the government or authorities ever require income verification.
How These Tax Rules Impact Payers and Recipients?
Those paying alimony no longer benefit from deductions, increasing their taxable income. This additional cost will probably require adjustments to the budget. In the interim, recipients could gain an advantage by avoiding taxes on this this additional income. Understanding specifics around alimony and taxes can better guide a divorcing couple and family law attorneys alike in negotiations.
Navigating post-divorce finances can be challenging. Make sure you speak to a knowledgeable, compassionate family law attorney and financial advisor to guarantee you make fully informed decisions on alimony that align with updated North Carolina tax laws. Their guidance can save help you can avoid future tax surprises. The 2019 tax reforms brought major changes to the dynamics around alimony. With the right legal and financial support, you can make arrangements that work for your unique situation.
