Taxes and Family Law

This information is provided courtesy of:

Jeremy Salvador

MIOD AND COMPANY, LLP
CERTIFIED  PUBLIC  ACCOUNTANTS

27200 Tourney Road, Suite 290
Valencia, CA 91355-5906
Telephone: (818) 898-9911
Facsimile: (818) 898-9922 

777 E. Tahquitz Canyon Way,
Suite 200-164
Palm Springs, CA 92262
Telephone (760) 779-0990
Facsimile (760) 779-0960 

The Trump Administration announced its tax plan, to cut taxes for every child, woman, and man.  But what does that mean for you and me?  From income for support to property division, We will be affected by this reform decision.  So here’s a few things I think you  should know.  The details of which are delineated below:

1. New Tax Brackets for Individuals – Trump’s plan attempts to simplify the tax bracket system from seven brackets (10%, 15%, 25%, 28%, 33%, 35%, and 40%) to three brackets (10%, 25%, 35%). 

2.    Single Tax Bracket for Corporations – C Corporations will be subject to single tax across any taxable income. The proposed tax is 15%.

3.      Eliminate the Alternative Minimum Tax and Estate Tax – The alternative minimum tax (AMT) is a tax that is typically triggered for high earning individuals. The estate tax is typically imposed on estates that hold eight-figures worth of assets or more. Under Trump’s plan these taxes will be eliminated.

4.      Getting Rid of Itemized Deductions – Trump will get rid of most personal itemized deductions to compensate for the three-tiered tax rates for individuals and the single tax rate for corporations. His plan will, however, keep the mortgage interest deduction and the charitable contribution deduction. This change in the tax system could have “yuuuuge” implications for California Family Law. See below:

Traditionally, alimony paid to a current or former spouse has been deductible against the income of the payor. If Trump’s plan gets rid of the personal and itemized deductions, the alimony deduction might be one of them. Settlements and judgements concerning deductible spousal support could have very different discussions.

Legal and accounting fees incurred to receive alimony have also traditionally been deductible as “other miscellaneous expenses” on Schedule A (itemized deductions) because these were expenses incurred in attaining taxable income. This deduction may not be available under Trumps plan. There may still be a way that a client can benefit tax-wise from these expenses. Give me a call if you’re interested in hearing how.

5.  State Tax Deduction – The final issue I think you should be aware of, is the interplay between federal taxes and state taxes. Historically, state taxes paid have been an itemized deduction when calculating federal income taxes. If the state tax deduction is no longer available, that would mean that Trump’s tax plan might actually have a negative consequence.

Overall, it seems like there are going to be some changes coming.