Newly Divorced or Soon to Be? New Tax Bill Complicates Things.

The Tax Cuts and Jobs Act of 2017 made a number of important changes to the IRS code, some of which either directly or indirectly relate to divorce.

The security industry runs 24 hours a day, seven days a week, 365 days a year. Operating a security business can produce a lot of stress — and, unfortunately, a lot of divorces.

I typically get involved when a divorcing couple needs a valuation of the security company, but the Tax Cuts and Jobs Act that was passed last year contains a provision that is going to get the IRS involved as well.

The 2017 tax overhaul eliminated or sharply limited various traditional tax deductions, including the alimony deduction. Only taxpayers who make payments under divorce or separation agreements entered into prior to Jan. 1, 2019, can continue to claim a deduction for payments made. And individuals who receive alimony pursuant to these agreements are supposed to continue to report the payments as income on their tax return.

For 2018, the IRS Form 1040 was reduced to the “size of a postcard,” but a new page, Schedule 1, was added to explain the totals on the Form 1040.

The IRS will reportedly add a question to Schedule 1 of the Form 1040 next year asking taxpayers who claim a deduction for paying alimony to provide the date of their divorce or separation agreement.

The IRS plans to revise Schedule 1 to obtain additional information regarding divorce or separation agreements for tax year 2019 and later and help them to determine if taxpayers are eligible for the deduction for alimony payments, and to revise Form 1040, Schedule 1 to request the date of divorce or separation agreements.

The IRS’s current plan for determining if the taxpayer is eligible for the alimony deduction claimed after Dec. 31, 2018, is to program filters that evaluate a taxpayer’s filing history regarding the alimony deduction to determine if alimony was paid prior to tax year 2019.

IRS management stated that they would use the filters to select tax returns for audit. The volume of tax returns selected will be dependent on available resources and appropriate dollar thresholds.

Bottom line: If you are getting, or have gotten, divorced after Dec. 31, 2018, make certain that your lawyer, and accountant, are familiar with the changes in the new tax bill.

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