The So Called "Tax Cuts" and Jobs Act of 2017 Eliminated Deductibility of Alimony for Divorces in 2019

The Tax Cuts and Jobs Act of 2017 made divorce quite possibly much more expensive. Beginning for divorces executed in 2019, alimony paid by one spouse to another spouse is no longer deductible by the spouse making the payments. Inversely, the alimony is not taxable to the spouse being paid.

On the face of it, this sound pretty good for the payee. You no longer have to pay taxes on your alimony!

But the problem is that the payor, who is likely to be in a higher tax bracket than the payee, will no longer be able to reduce his or her or his taxable income by the amount of the alimony paid.

For grins (or perhaps groans), let’s look at an example.

Billy Bob and Billie Jean get divorced on January 1, 2019. Billy Bob earns $150,000 per year. Billie Jean does not work. As part of the divorce settlement, Billy Bob must pay $30,000 in alimony per year.

Using 2019 federal tax rate schedules, and assuming both deduct only the $12,200 per year 2019 standard deduction, Billy Bob would pay $27,295 in federal taxes in 2019. Billie Jean would pay no taxes on her alimony.

If the divorce agreement had been finalized one day earlier, December 31, 2018, Billy Bob would have reduced his taxable income by the $30,000 in alimony paid to Billie Jean. As a result, his 2019 federal taxes would be $20,095, fully $7,200 less than under the new laws. Billy Bob is in the 24% federal tax bracket.

Billie Jean would have to pay taxes on the $30,000 received had the divorce been finalized in 2018, but after taking into account the $12,000 standard deduction, her federal taxes would be $1,966.

So some might think, GOOD! Now Billie Jean doesn’t have to pay taxes! Good for her!

Well, let’s look at the bigger picture. The total taxes paid on that same $150,000 in total earned income in 2019 has increased by $5,234, from $22,061 ($20,095 plus $1,966) in 2018 to $27,295 in 2019. That’s a 24% increase in federal taxes as a result of the so called “Tax Cuts” and Jobs Act of 2017.

This may result in some particularly more heated discussions in future divorce proceedings.

Unlike other of the so called “Tax Cuts” laws that were changed on a retroactive basis that hurt middle class taxpayers (such as the arbitrary $10,000 per year “cap” on state and local taxes that has hit many in California particularly hard), this change in tax law was not made retroactive.

In other words, if you were divorced prior to 2019, the deductibility of alimony payments was not taken away from you. It just applies on a go-forward basis.

On behalf of all current year and future divorcees, thank you to our brilliant legislators who make these drastic changes in tax laws impacting our financial livelihoods.

More on the treatment of alimony at www.irs.gov/taxtopics/tc452.

Earned Income Tax Credit & Volunteer Income Tax Assistance Locations in Ventura County

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The Earned Income Tax Credit (EITC) Program is a refundable tax credit available to individuals and families earning less than $49,194 and $54,884, respectively, in 2018. This is the federal government's largest anti-poverty measure and refunds can amount to as much as $6,431 (for 2018) for families with three or more qualifying children.

The Volunteer Income Tax Assistance (VITA) program recruits volunteer tax preparers to provide free preparation of federal and state income tax returns to taxpayers with incomes less than $55,000 in 2018. VITA benefits these taxpayers by eliminating the cost of commercial tax return preparation and by securing valuable tax credits such as the Child Tax Credit and EITC.

Local VITA location sites are as follows (see this IRS link for details, including dates and times):

What to bring:

  • Proof of identification (photo ID)

  • Social Security cards for you, your spouse and dependents

  • An Individual Taxpayer Identification Number (ITIN) assignment letter may be substituted for you, your spouse and your dependents if you do not have a Social Security number

  • Proof of foreign status, if applying for an ITIN

  • Birth dates for you, your spouse and dependents on the tax return

  • Wage and earning statements (Form W-2, W-2G, 1099-R,1099-Misc) from all employers

  • Interest and dividend statements from banks (Forms 1099)

  • Health Insurance Exemption Certificate, if received

  • A copy of last year’s federal and state returns, if available

  • Proof of bank account routing and account numbers for direct deposit such as a blank check

  • To file taxes electronically on a married-filing-joint tax return, both spouses must be present to sign the required forms

  • Total paid for daycare provider and the daycare provider's tax identifying number such as their Social Security number or business Employer Identification Number

  • Forms 1095-A, B and C, Health Coverage Statements

  • Copies of income transcripts from IRS and state, if applicable

www.irs.gov/individuals/free-tax-return-preparation-for-you-by-volunteers

Other Free Online Tax Filing Options for Federal and State Income Taxes

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In addition to MyFreeTaxes.com, (described in THIS POST), there are other online resources to enable those with simple tax returns to file for free online. Generally these options cover those W-2 income, some interest/dividends, kids and rent. What they don’t cover are itemized deductions, Schedule C (for self-employed individuals claiming business expenses), stock gains/losses, etc. Here are some options:

H&R Block www.hrblock.com/online-tax-filing/free-online-tax-filing

TurboTax Free Edition turbotax.intuit.com

TaxAct has the same option at www.taxact.com

TaxSlayer www.taxslayer.com

DIY Tax www.freetax.com

Jackson Hewitt www.jacksonhewitt.com/file-taxes-online

And these are just a few. No need to pay someone to do your taxes if you have a simple return!

MyFreeTaxes.com Offers Free Income Tax Preparation Service to Eligible Americans

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MyFreeTaxes.com offers free federal and state tax preparation and filing services both online and in person to eligible Americans across the country. 

MyFreeTaxes national and local partners also provide taxpayers with eligibility information about the Earned Income Tax Credit (EITC) and other tax credits to help them keep more of what they earn.

Individuals and families earning less than $66,000 in 2018 are eligible to use MyFreeTaxes.com for their 2018 tax returns. MyFreeTaxes.com tax filing software is provided by H&R Block®.

Or if you made $54,000 or less in 2018 and would like help in preparing your tax returns, click this link for Ventura County area Volunteer Income Tax Assistance programs.

California Sales and Use Tax Rates Drop by .25 Percent on January 1, 2017

A sliver of good news on the tax front. Voters approved Proposition 30, The Schools and Local Public Safety Protection Act of 2012, in the November 6, 2012 statewide election. The measure was approved by a margin of 56% to 45%.

Proposition 30 mandated an increase in the statewide sales tax rate from 7.25% to 7.5% effective 1/1/13 through 12/31/16. along with a 7 year increase in marginal income tax rates for certain filers with incomes over $250,000.

Since we are quickly approaching the end of 2016, we have a .25% reduction in sales and use tax rates to look forward to in the new year.

This means that sales taxes in most of Ventura County, including Thousand Oaks, will drop from 7.5% to 7.25%, Rates in Oxnard and Port Hueneme will drop from 8% to 7.75%. Rates in Los Angeles County, including neighbors Agoura Hills and Westlake Village, will drop from 9% to 8.75%.

Transfer of Assessed Value to Taxpayers 55 and Older for New Residence Purchases in Ventura County

There are two California propositions that allow exclusions from reappraisal when selling your property in Ventura County if you are age 55 or older at the time of sale.

Proposition 60 allows transfers of base year values within the same county. Proposition 90 allows transfers from one county to another county in California (inter-county). Not all counties in California have inter-county policies; Ventura County does.

Prop 60 allows taxpayers ages 55 and older to sell their personal residence and buy a new one of equal or lesser value to transfer the "assessed" value of the former home to the new home. This can save you significantly in property taxes if the assessed value of your former home is significantly less than the current market value (as a result of Prop 13 limitations).

If you qualify, you must complete the Claim of Person(s) at Least 55 Years of Age for Transfer of Base Year Value to Replacement Dwelling (Prop 60/90) form available on the Ventura County Assessor website at assessor.countyofventura.org/taxsavings/seniors.asp.

Here is a variety of additional details and limitations:

  • Either you, or your spouse (if married) has to be 55 or older at the time of sale. It does not have to be both of you.
  • Both properties must be your personal residence (e.g. not a rental property).
  • This is a one time tax benefit, even if you divorce or a spouse dies. (Except if one of you subsequently becomes severely or permanently disabled, in which case if you move again you can file for relief again under Prop 110.)
  • The new home or property must be purchased within 2 years of selling the old home.

More details at www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm.

Ventura County Top Ten Secured Property Tax Bills for Fiscal Year 2015-2016

Last month the County of Ventura Treasurer-Tax Collector published a list of the top 10 secured property tax payers in the county for fiscal year 2015-2016 as a matter of public record. Personally I thought for sure I would be on this list but, whew, I was not!  

Here they are:

#1 biggest taxpayer is Southern California Edison, with taxes of $13.4 million on $933 million of property valuation.

#2 is Thousand Oaks biotech giant Amgen Inc., with taxes of $13.1 million on $1.24 billion of assessed value.

#3 is Aera Energy LLC, with $7.1 million taxes on $679 million of assessed value.

#4 is Vintage Petroleum LLC, with $3.8 million taxes on assessed value of $356 million.

#5 is Proctor-Gamble Paper Products, which pays $3.7 million taxes on $307 million of assessed value.

#6 Macerich Oaks LLC pays $3.1 million in taxes on assessed value of $293 million.

#7 Southern California Gas Co. pays $2.8 million on assessed value of $198 million.

#8 Baxter Healthcare Corp (which I suspect is now called Baxalta) pays $2.8 million on assessed value of $262 million.

#9 Vintage Production CA LLC pays $2.4 million on $205 million assessed value.

#10 Los Robles Hospital pays $2.2 million on $206 million in assessed value.

Now what are you going to use this information for? Maybe a trivia game?

Property taxes are collected by the Treasurer-Tax Collector of Ventura County on behalf of the county, most of the city's 10 incorporated cities, 20 school districts and other local taxing agencies. As a resident of Thousand Oaks you will see a variety of taxes in addition to the base property tax of 1% of the assessed value of your property, such as school bonds, service agencies and special assessments.

Personally, perhaps my least favorite moment of the year is seeing the annual Secured Tax Statement in the mail. But heck, that's part of the price of living here in paradise I guess.

The general tax levy is limited to 1% of assessed value. Assessed value can increase no more than 2% per year based on Proposition 13. 

Learn more about Ventura County property taxes at www.ventura.org/ttc.