Taxes & Divorce - Ten Tips to Consider

May 20, 2019 | Written by: Diana N. Fredericks, Esq. | Share

1. The new tax law changes (Tax Cuts and Jobs Act of 2017) expire in 2025. This needs to be a consideration in drafting divorce agreements, as these changes may affect what is agreed upon now.
2. Capital gains rates do not match up with ordinary tax brackets and must be considered differently.
3. Because of the increase in the standard deduction, many taxpayers who previously itemized will take the standard deduction and no longer deduct things like mortgage interest, real estate taxes, state income taxes, and charitable contributions.
4. Married couples filing jointly do not always receive a better tax benefit, as this depends on each person’s income and tax bracket.
5. The marital status of the parties on the last day of the tax year generally determines how they file taxes for that year.
6. The alimony deduction, previously referred to as an exemption, has been eliminated under the new law. However, tax credits for children and the head of household filing status may be an issue.
7. In the past, the income tax on a child’s investment (known as the “kiddie tax”) was based on the parent’s rate. However, this will now be based on the rates for trusts. 
8. In 2018, the child tax credit goes up to $2,000, if the qualifying tests are met.
9. The new tax law permits 529 funds to be used for higher education as well as for private elementary or secondary school tuition up to a maximum of $10,000 per year, per beneficiary. The funds can also be used for expenses like computers.
10. In 2018, the following deductions were eliminated and are no longer deductible:
    • Investment fees
    • Tax preparation fees
    • Employee business expenses
    • Attorney’s fees
    • Moving expenses
    • Job expenses
    • Entertainment expenses
    • Transit/parking reimbursement

Tax issues are inextricably linked to your divorce; however, it is critical that you discuss your tax issues with a CPA and not only with your divorce attorney.  These professionals should work together to ensure a reasonable settlement or trial position.

 

Diana Fredericks, Esq., is a partner with Gebhardt & Kiefer, PC and devotes her practice solely to family law matters.  She is a Certified Matrimonial Law Attorney and was named to the NJ Super Lawyers Rising Stars list in the practice of family law by Thomson Reuters in 2015, 2016, 2017, 2018, and 2019, and to the New Leaders of the Bar list by the New Jersey Law Journal in 2015.  Contact Ms. Fredericks for a consultation at 908-735-5161 or via email.

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