All week we have been discussing Above the Line Deductions. We began Monday with Health Savings Accounts, Tuesday we discussed Moving Expenses, Wednesday’s discussion was on the Tuition and Fees Deduction, and Thursday we turned our attention to Educator Expenses. Today we are going to discuss Alimony Payments.
IRC §71 defines alimony or separate maintenance payments as the following:
· “Such payment is received by (or on behalf of) a spouse under a divorce or separation instrument,
· The divorce or separation instrument does not designate such payment as a payment which is not includible in gross income under this section and not allowable as a deduction under Section 215
· In the case of an individual legally separated from his spouse under a decree of divorce or of separate maintenance, the payee spouse and the payor spouse are not members of the same household at the time such payment is made, and
· There is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make a payment (in cash or property) as a substitute for such payments after the death of the payee spouse.”
Alimony that you paid is taxable to the recipient and is tax deductible to you. In order for you to be able to deduct these payments you must meet the following six requirements:
1. You and your spouse or former spouse do not file a joint return with each other,
2. You pay in cash (including checks and money order)
3. The divorce or separation instrument does not say that the payments are not alimony,
4. If legally separated under a decree of divorce or separate maintenance, you and your former spouse are not members of the same household when you make the payment,
5. You have no liability to make any payment (in cash or property) after the death of your spouse or former spouse; and
6. Your payment is not treated as child support.
It is important that the amounts that you pay your former spouse cannot be deemed child support. The IRS defines child support two different ways. Fixed child support means payments that are designated as child support in the divorce or separation agreement. Deemed child support payments are harder to figure out.
Payments are considered deemed child support to the extent of future payment reductions that are triggered by any of the following child-related events:
· Attaining age 18, 21 or the age of majority under local law
· Death of a child
· Marriage of a child
· Completion of a child’s schooling
· The child leaving the household
· The child attaining a specified income level or becoming employed
To muddy the waters, payments that are reduced within six months before or after the child reaches 18, 21 or the local age of majority are also treated as deemed child support.
As you can see, there are a lot of variables of what is deductible and what is not in regards to alimony, Be sure to consult a tax advisor.
For more information visit www.smalleynco.com
If you have any questions you can email Craig W. Smalley E.A.
Author of the books: It Starts With an Idea – Tax Tips for Small Businesses available on Nook and Kindle, The Ultimate Real Estate Investor Tax Guide, available on Nook and Kindle, The Complete Guide to the New Tax Law – American Taxpayer Relief Act of 2012 available on Nook and Kindle, Everything You Wanted to Know about the IRS – Audits, Appeals and Collections available on Nook and Kindle, Tax Avoidance is Legal! The Complete Guide to Individual Income Tax available on Nook and Kindle, The Complete Guide to the Affordable Care Act’s Tax Provisions available on Nook and Kindle, The Complete Guide to Retirement Plans for Small Businesses available on Nook and Kindle, and The Complete Guide to Estate, Gift and Trust Taxation, available on Nook and Kindle