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How to minimize taxes without the deduction for alimony

Prior to this year, financial planning during divorce was fueled by the alimony deduction. That all changed for divorces finalized after 2018 with new laws prohibiting payors of alimony — including those in Louisiana — from deducting those payments on their tax returns at the federal level. Essentially, this means, although the person paying alimony will owe more taxes, he or she may pay less alimony, while the payee won’t be taxed on those payments but may receive less in support payments, and there are still ways to minimize taxes.

The question is, then, what strategies could be used to mimic the tax benefits prior to new legislation being enacted? For instance, alimony could be funded with retirement accounts by transferring funds at values that are pre-tax. An irrevocable charitable remainder trust might also be beneficial in that it pays taxable income to a beneficiary with the remainder of funds going to charity. 

Being mindful about which spouse gets which assets can also help to minimize taxes. Also, a lump sum payment of alimony may be better than single payments. Every family’s situation is unique, and it may be best to confer with an accountant, a financial planner and a lawyer.

Louisiana residents will want to find ways to minimize taxes, whatever their situations may be. A lawyer may be able to help a client in various situations to do that — especially when it comes to estate planning and alimony, and/or child support payments. There are ways to invest wisely to minimize the financial fallout.

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