How to reduce your tax burden even without the alimony deduction

On Behalf of | Feb 4, 2020 | Alimony |

Many couples rushed to get their divorce finalized in 2018 to avoid becoming subject to new tax laws that took effect at the start of 2019. Under the new tax law, affected payors no longer get to deduct alimony payments from their taxable income. This puts a greater financial burden on the person making the payments. 

One Business Insider points out that this helps the government to make more money from alimony payments. This is because the breadwinner would inevitably be in a higher tax bracket than their spouse, which means higher taxes for the government. Still, as is not lost. Couples across America have found creative ways to reduce their tax burden anyway. 

Forbes recommends using retirement accounts to fund spousal support at pre-tax values. If the receiving ex-spouse agrees to this, it may allow them to receive the same amount of money they otherwise would have but in total, but with a significant portion of it given up front. This reverts things to the pre-2019 arrangement where the payor does not pay taxes on the amount given but the recipient does upon withdrawal. 

Another option some couples have explored is a charitable remainder trust. In this instance, the breadwinner pays money to a trust that is set up to benefit a charitable cause. That person then gets to take a tax deduction up to the value of assets contributed. When the trust generates income, the recipient receives this income and becomes responsible for the taxes due. 

These are just some of the approaches divorcees might take to lower their tax burden. Speaking to a licensed professional could turn up some additional suggestions.