Remember to report alimony received as income, alimony paid as a deduction but child support? It’s tax neutral. #TwitterTaxTip
(For more on twitter tax tips, see my prior explanatory post.)
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Posts tagged as:
alimony
Taxpayer asks:
Hi Taxgirl,
My wife filed for divorce in Tennessee Aug 2007. Moved out of the house in Dec 2007 and have paid her money ordered by the court as spousal support.
I’ve paid all year and want to know if I can claim this money paid as alimony.
Thanks for your help!
Taxgirl says:
It sounds as though you can because of four important words “ordered by the court.”
To qualify as alimony for purposes of a federal income tax deduction, the payments must be “to or for a spouse or former spouse under a divorce or separation instrument.” That means that you must have an official agreement requiring the payment of support. An official decree of divorce with mandatory support payments, a written separation agreement requiring such payments or any other type of court order requiring you to support your spouse would count. The agreement or order does not have to be permanent: temporary decrees, interlocutory (not final) decrees, decrees of alimony pendente lite (awaiting a final decree “during the proceedings”) all count.
(Psst, try those terms out at cocktail parties and see how cool you feel.)
You also have to be divorced or under a separation order. Yeah, it sounds like common sense but you’d be surprised. Additionally, you cannot be living under the same roof as your spouse/ex spouse when you make the payments (unless you meet an exception due to a court order), nor can you claim alimony in a year that you file a joint tax return with your spouse/ex spouse.
Payments must be made in cash or cash equivalent. Noncash property settlements (including turning over the family home) do not qualify as alimony, even if ordered by the court.
Voluntary payments that are not made under a divorce or separation instrument do not qualify as alimony. And the IRS and you may have a different understanding as to what constitutes “voluntary.” Here’s a tip: if you have an official order or agreement, as mentioned above, it’s not voluntary. But if you simply have an understanding, you feel morally compelled to make payments or your ex-spouse is demanding that you pay him or her something and you do so just to shut him or her up (it happens), you may not deduct those payments as alimony.
Also note that payments which can be characterized as child support do not count as alimony payments. If you are overdue on child support, the IRS will characterize payments made to your spouse/ex spouse as child support first, not alimony, and it is therefore not deductible. So stay current on these things! It’s not on tax advantageous, it’s the right thing to do.
Your bonus tip for the day: make sure that your family lawyer knows something about tax law. If not, hire a tax professional to review your settlement or divorce agreement and make sure it makes good tax sense (no matter which side you’re on). While you cannot deduct fees and costs to get a divorce, you may be able to deduct legal fees paid for tax advice in connection with a divorce and legal fees to get alimony. You may also be able to deduct the related costs of appraisers, actuaries, and accountants.
Take it from my friends, Nazareth: love hurts. Talking about taxes shouldn’t.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
Have a question? Ask the taxgirl! – Now on Facebook!
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Taxpayer asks:
I PAY MY XWIFE SUPPORT CAN I CLAIM THAT MONEY ON MY TAXES?
Taxgirl says:
This is another one of those questions for which I have received a bunch of variations on a theme. It’s not just high profile divorcees like Britney Spears and Kevin Federline, pictured above, who have to deal with these financial issues. In any divorce, no matter how big or small the financial stakes, the same rules apply.
Generally, alimony is deductible to the payor as an “above the line” deduction which means that the taxpayer doesn’t have to itemize in order to claim it (from a tax policy standpoint, this is a pet peeve of mine but that’s a separate post). Alimony which is received by a taxpayer must be reported on a tax return as income.
The specific rules regarding alimony and divorce can be complicated; the information in this article only applies to alimony under divorce or separate maintenance agreements made after 1984.
In order to deduct alimony payments under a divorce or separation decree or agreement, the following requirements must be met:
1. You and your spouse or former spouse do not file a joint return with each other;
2. Alimony payments must be paid in cash, checks or money orders (in other words, noncash property settlements for cars, etc., are not considered alimony);
3. The payment must be considered alimony – the divorce decree or other agreement cannot state that the payment is for something other than alimony;
4. You and your former spouse cannot be 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.
The last part is important because child support payments are never deductible. Additionally, child support which is received is never reportable as income.
If you do not make all of your payments for alimony and child support under your divorce decree or agreement or other judgment, the IRS will consider the amount paid first as child support, not alimony. In other words, if you are required to pay $1000 in child support and $500 in alimony and you pay $1000, you may not claim any deduction at all: child support is not deductible and the IRS considers your $1000 as child support payments. If you pay $1200, you may claim $200: child support is not deductible and the IRS considers your payment applied first as child support and the remainder as alimony.
Voluntary payments, meaning those not required by law, decree, settlement agreement or otherwise, do not qualify as alimony. This is an extremely important concept to understand. This means that payments made to a spouse simply to avoid the hassle of a divorce – or in contemplation of divorce by not required – would not be deductible.
Keeping those things in mind, this is why it’s important to have a writing of some kind that clearly delineates the division between alimony and child support. Don’t assume that since it all goes to the same pot, it has the same tax consequences. And don’t assume that it doesn’t need to be memorialized in a writing somewhere, it does in order to avoid confusion later.
For more information about divorce and taxes, check out my prior post on the subject.
Also remember that family law varies state by state, which may affect your federal tax status. I highly recommend consulting with a family law attorney and/or tax professional before making any financial or tax decisions relating to child support, alimony or other support.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
Have a question? Ask the taxgirl!
(Image source: newscom)
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Notwithstanding the train wreck that is Britney Spears these days, there has been a lot of criticism of Kevin Federline’s requests for child support and spousal support. Initially, K-Fed was receiving (according to TMZ.com) $15,000 per month in child support with joint custody, and an additional $20,000 per month in spousal support. The amount of spousal support was based on a prenuptial agreement and was slated to end in November.
Of course, that was all before the VMAs on MTV. Before the car crashes. Before the reports of cocaine abuse. And, of course, before a judge ruled that “there is a habitual, frequent, and continuous use of controlled substances and alcohol by (Britney)”. If you believe the reports – and why wouldn’t you – Kevin Federline’s price for shutting up and moving on jumped a little higher.
And how does this affect Ms. Spears? Plenty. You see, alimony is tax deductible. Child support is tax neutral. If Britney has to pay more to Kevin Federline, it would actually be to her advantage from a tax perspective if the increase was classified as spousal support and not as child support or as a division of marital property. And judging from the likely demise of her recording and dancing career, it’s probably not the worst idea in the world to try and save some money where she can… Think I’m kidding? Did you see her performance on MTV?
[youtube=http://www.youtube.com/watch?v=Ph2px5r9A20]
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