Going through a divorce can raise a considerable amount of concerns regarding your finances. Many considerations must be made, including how you will split assets, how much alimony the dependant spouse should receive, and how to file taxes as a single individual for the first time in years. Unfortunately, you may not have considered is whether alimony is taxable income. It’s necessary to familiarize yourself with these matters to reduce complications later. Additionally, you’ll find it’s in your best interest to connect with a Los Angeles divorce attorney to discuss the details of your divorce for further guidance.
What Is Taxable Income?
Taxable income is any form of wages, money, or funds you receive that will incur taxes. Generally, this is used to calculate how much you will owe in a tax year.
It’s important to understand that earned and unearned income can be taxed. This means your income from wages or bonuses will be taxed, as well as passive forms of income like interest on a savings account, unemployment, and inheritance money.
How Is Alimony Treated?
The Internal Revenue Service (IRS) considers almost all forms of income as taxable. However, there are a few exceptions, which include the following:
- Child support
- Healthcare benefits
- Alimony payments
While alimony payments are included, it’s essential to understand that this can vary depending on when the divorce was finalized. If your divorce was before 2019, you must report the payments on both state and federal tax forms. Additionally, the paying spouse can deduct payments.
However, if your divorce was in 2019 or later, the laws for federal and state reporting differ. For federal taxes, you will not report the income on your return, and the paying spouse can not have them deducted. However, for California state taxes, recipients must report their income when filing, and paying spouses can deduct the payment on the income form.
If your order changes, you may wonder if the tax rules will subsequently change. Generally, you will adhere to the laws that applied to your original order. However, you and your ex-spouse may agree to follow the new tax laws, as this makes them not deductible but non-taxible. If you agree to this, your judgment must be amended to state that you will adhere to the updated laws.
What Should I Do if I Need Assistance?
Getting a divorce can be confusing and complex, so it’s in your best interest to consult with an experienced attorney for further guidance. Because your financials are on the line, ensuring you let a lawyer guide you through this process can help you avoid costly mistakes that could impact you for years to come.
If you are ready to file for divorce or are currently in the midst, the Zitser Family Law Group is here to assist you. Our team understands how complex the tax implications of divorce and alimony can be. As such, we will do everything possible to help you navigate these issues so you can focus on transitioning into the next chapter of your life. Contact our dedicated firm today to discuss the details of your circumstances with a member of our team.