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Tax reform bill can affect alimony payments in divorce process

The tax reform bill currently in Congress is a hot topic in the state of Oregon and other states across the country. One issue addressed in the bill that is before the House of Representatives is the treatment of alimony. Since the discussion of alimony can be a potentially volatile subject in divorce proceedings, any potential changes in its handling is being closely watched.

As the law stands now, the person paying alimony may take an above-the-line deduction, whereas the person receiving it must count it as gross income. The former spouses may enter an agreement to alter their alimony's tax treatment. Typically, the payor of alimony would be in a higher tax bracket and thus would benefit from the deduction.

Tax records reflect that most payors take the deductions. Yet, many recipients of alimony do not report the payments as part of their income. In fact, the Treasury Inspector General for Tax Administration reported that almost half the tax returns with a deduction for alimony in 2010 did not have the proper income reported. This results in over $1.5 billion in unreported taxes. Officials recommend that communication be sent to warn against possible errors when reporting alimony.

No matter what decisions are made regarding the tax treatment of alimony, it will remain an issue that needs to be addressed during a divorce. To adequately understand alimony and other issues, such as property division and child support, it would be wise to contact an Oregon divorce attorney for guidance. A knowledgeable lawyer will help clients thoroughly understand the divorce process and will work toward achieving the most favorable outcome in the proceedings.

Source: The Huffington Post, "Thinking About Alimony in Tax Reform", Margaret Ryznar, Nov. 12, 2017

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