How will the proposed tax reform impact divorce in Carlsbad? Spousal support, referred to as “alimony” by the IRS is presently deductible for the payor and taxible for the recipient. Child support is presently neither deductible for the payor nor taxible for the recipient.
The tax impact of child support and spousal support is a significant consideration in the majority of Carlsbad and North County divorce cases. The present tax reform proposal would eliminate the ability to deduct spousal support or alimony from federal taxes.
The removal of this deduction shifts all of the tax burden to the spouse making support payments. Let’s take a basic case where the husband is ordered to pay the wife $1,000 in montly spousal support. If you assume a mid-point 25% tax bracked the payor would receive a $250/month tax deduction. The net actual cost to the husband in this case is actually only $750.
However, under the new proposal the payor would lose the $250 tax deduction meaning the actual financial impact is the full $1,000 payment. This factor, combined with the tax impact of child support provides less actual money on the table for the recipient. Both parties lose in this scenario.
California tax implications can be quite complicated. In this way, the proposed tax reform will have a direct impact on both parties in most California divorce cases moving forward. It is more important than ever to work with the experienced and proven divorce and family law attorneys at Burke & Domercq, APC.
We invite you to review the recommendations of our clients and contact us or call 760-434-3330 to schedule an appointment. Our attorneys work to aggressively protect the interests of our clients while seeking the accomplishment of their goals and objectives for the process.