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New tax act could spell big changes to alimony if enacted

For those in Nevada who follow politics, tax reform is a hot button issue right now. In fact, a recent act known as the Tax Cuts and Jobs Act has received considerable attention on both sides of the aisle, some positive, some negative. Of course, not everyone follows politics. However, they may want to stop and take note of this act, especially if they pay or receive alimony, also known as spousal support.

As it stands right now, alimony payments are deductible for the paying party, but must be included as income and taxed for the receiving party. According to the Internal Revenue Service, in 2015 nearly 600,000 individuals took advantage of the alimony deduction on their income taxes, amounting to over $12.3 billion. However, under this new act, the opposite will be true. Alimony will be taxed to the paying party, and the party who receives it will not have to report it as income.

Part of this change may have to do with the discrepancy between those who deduct alimony from their taxes under current law and those who report it as income. In 2010, over 500,000 individuals deducted alimony payments adding up to over $10 billion in deductions. However, the amount of alimony that was reported as income was more than $2 billion less than that. Also, since in general the party paying alimony is in a higher tax bracket than the party receiving alimony, under this new act, by taxing the paying party, the amount of taxes going to the government will be greater and ultimately the amount going to the receiving party would be less.

It remains to be seen if this act will become law. In the meantime, those who are concerned about how this act might affect them or who want more information on current alimony laws may want to consult with a family law attorney.

Source: CNBC, "Tax reform could shrink alimony for ex-spouses," Sarah O'Brien, Nov. 3, 2017

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