The American Taxpayer Relief Act (ATRA) went into effect on January 1st, 2013 and will keep the middle-class from experiencing tax increases. As well, it will stop across-the-board spending cuts that were set to occur automatically before the act was created. Congress hopes that ATRA will make a lot of difference for the fiscal well-being of the country and keep America from running off the edge of the metaphoric “fiscal cliff” that men and women have been discussing for years. While the new tax laws are set to positively affect America and to help men and women to improve their financial wellbeing, it may have a different effect on divorcees.
In fact, Forbes claims that ATRA can wreck a divorcee’s financial future if both parties aren’t aware of how to factor the new act into their negotiations. You will want to take the time to learn about the new tax laws so that you can save tremendous amounts of money and avoid falling to financial ruin out of ignorance. Forbes says that there are two areas of divorce that will require your attention as you work through your case. You will want to look at the new tax laws in comparison to your new income and to your new division of assets.
First of all, you will want to look at how divorce will affect your income and how this can in turn affect your position in a tax bracket. This is because if you will be a recipient spouse and will be earning spousal support, alimony, child support, or another payment method, this may cause your income to spike up. As a result, you may discover that you are in a new tax bracket and this may cause you to pay more in taxes than you would have in years past. One of the major provisions in the ATRA is that there was a raise in tax rates on higher incomes.
Those who earn more will pay more in order to accommodate for a stagnant tax rate for the middle class. If you are a single filer now, and have an annual income of greater than $400,000, you will have to pay a 39.6% tax rate on income in excess of that $400,000 threshold. If you were under $400,000 without you’re alimony payments, but now exceed the $400,000 threshold, this may be a complication for you. According to the law you typically have to include alimony of spouse support as taxable income, unless it is structured as a non-taxable income to the recipient and a non-deductible expense to the payer. This is typically a rare occasion.
When you are going through your divorce settlement, it would be wise for you to consider how much alimony would keep you in your current bracket instead of pushing you up into a higher tax bracket. Sometimes it may be wiser to seek your alimony as a one-time annual lump sum amount that is not taxable. As well, child support payments most of the time is not considered income and are not taxable, so you may want to seek finances though this method instead of the alimony route. Alimony can typically be modified, so you may want to determine whether or not to modify your amount based on how much it will cost you in taxes.
After you have negotiated the right way to get the alimony that you are entitled to as a recipient spouse and have determined the best way to avoid high taxable amounts of income, you will want to consider how you will divide your assets as a result of ATRA. According to ATRA, there is not a 3.89% Medicare surtax on all capital gains, dividends and other investment income above $200,000. You will want to remember that there is this new tax as you negotiate the division of any stock portfolios that you shared or any other income-producing investments that would need to be split as a result of your divorce, Any filers who are a part of the higher income tax bracket will also need to submit to the federal capital gain tax rate which has been increased from 15% to 20%.
This can put a huge dent in the amount you would expect to earn by selling your assets, so you should weigh your decisions carefully as you determine who to divide your assets. If you want more information about how ATRA affects your divorce, you need to talk to a local family lawyer. With the right attorney on your side, you can carefully negotiate a settlement that is not satisfactory and not detrimental to you from a tax perspective. Contact a lawyer today for more information!