Divorce often brings about numerous financial changes, and understanding how spousal support affects taxes is crucial. Filing incorrectly can lead to unexpected consequences, so being informed can make a meaningful difference during tax season.
Contact Cavanagh & Associates through the online contact form or call (314) 309-2799 to discuss spousal support and tax implications.
What Is Spousal Support?
Spousal support, also known as alimony in some cases, is financial assistance paid from one former spouse to another after a divorce. It can help maintain financial stability while both parties adjust to new circumstances.
Key Points to Understand About Spousal Support:
- Amounts and duration are usually set by the court or agreed upon in a settlement.
- The payment can be adjusted depending on changes in income or other circumstances.
- The payer may have tax obligations depending on current IRS rules.
Tax Treatment of Spousal Support
Payer’s Perspective
For divorces finalized after 2018, spousal support is no longer deductible on federal income taxes. Payers must include payments as part of their expenses in planning budgets.
Recipient’s Perspective
Recipients of spousal support do not report these payments as taxable income for divorces executed after 2018. This shift alters how recipients manage their finances after divorce.
State-Specific Considerations in Missouri
- Missouri generally follows federal tax rules for spousal support.
- Some deductions or credits may still be available depending on income levels or filing status.
- Consulting a St Louis divorce attorney can ensure compliance with both federal and state rules.
Other Tax Implications to Consider
Property and Asset Division:
Dividing property may trigger tax consequences. Retirement accounts, real estate, and investments each have unique rules:
- Transfers of retirement accounts may use a Qualified Domestic Relations Order (QDRO) to avoid immediate taxes.
- Selling shared property may result in capital gains tax, depending on the timing and applicable exemptions.
Dependency Exemptions and Credits: Who claims children as dependents can affect tax obligations and eligibility for credits like the Child Tax Credit or Earned Income Tax Credit.
Tips for Filing Taxes After Divorce
Understanding spousal support is just one aspect of filing taxes after divorce. Consider these steps:
- Keep thorough records of all spousal support payments.
- Consult with a St Louis divorce attorney regarding recent IRS changes.
- Review asset divisions for potential tax triggers.
- Plan with a certified accountant for complex cases.
Taxes and Spousal Support: Guidance From a St Louis Divorce Attorney
Navigating the tax implications of spousal support can be challenging. Cavanagh & Associates provides guidance for post-divorce tax planning and ensures both payers and recipients understand their obligations. Reach out via the online contact form or call (314) 309-2799 to discuss your specific situation.