As February comes to an end, many of us have heard or read that there are new tax laws that have been enacted for 2018. You may be busy preparing your 2017 tax returns and wondering if the new tax laws will affect you this year, next year or at all. If you have children that you claim as dependents or if you claim your spouse as a dependent on your tax returns, the new tax laws may affect you. The good news is that if you normally have a tax credit for listing a child as a dependent, the amount of the credit has increased from $1,000.00 to $2,000.00. If you claim any other person as a dependent who is over the age of seventeen (17) years old, you can take a $500.00 tax credit.
If you are confused as to who the IRS considers to be a “child” for purposes of claiming the child tax credit, the “child” must be your biological child, adopted child, foster child, step child or grandchild. The “child” could even be your brother, sister, step-brother, step-sister, nephew or niece. The “child” must also be under the age of seventeen (17) years old and must live with your for more than half of the tax year that you are claiming him or her as your dependent. Additionally, the IRS requires that the “child” actually be your dependent, meaning he or she cannot provide more than half of his or her own support.
The bad news with this new tax law is that you can no longer take exemptions for claiming dependents on your tax returns. This law is set to go into effect in 2018, so you will still be able to take exemptions for your dependents when you file your 2017 tax returns.
Another family law area that the 2018 tax law affects is alimony. Many men and women who have gotten a divorce are obligated to pay their former spouse alimony payments. An advantage of being the payor spouse was that you were allowed to deduct alimony payments from your tax returns. The spouse who received the alimony payments was obligated to report the alimony payments as part of his or her gross income, which was taxable. With the new tax law going into effect on December 31, 2018, the payor spouse will be unable to claim alimony payments as deductions on his or her tax returns.
Additionally, the new law eliminates alimony recapture. If you are unsure as to what alimony recapture is or if it affects you, alimony recapture is a procedure involving spouses who make alimony payments to their former spouses. If alimony payments decreased or terminated during the first three (3) years that a payor spouse was obligated to pay alimony, the payor spouse was required to include in his or her income for the third year, any alimony payments he or she previously deducted.
Another change that the new tax law brings is how support payments are allocated. In prior years, support payments had to be designated as alimony payments only or child support payments only. The new tax law eliminates this allocation requirement so that support payments are simply “support payments.”
If you would like more information on the new tax laws and how they affect your current family matters, or if you have questions or concerns regarding the new tax laws, contact D’Amico Law, P.C. We are happy to assist you and answer any questions that you may have.