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)
You probably think that I’m talking about the fact that for some disturbing reason, retailers have packed the stores with Christmas goodies – and Halloween isn’t even over yet (who buys stuff this early anyway?).
But I’m not.
I’m talking about solicitations. It’s the time of the year when charitable organizations come calling. So far this month, I’ve received more than ten charitable solicitations from tax exempt organizations: my daughter’s school, college, law school, the arboretum, PHS, the zoo, the art museum, public radio, public television and more. We’re sorting through all of them, trying to decide which ones to support. In addition, we’re plowing through piles of summer clothes since fall has finally decided to pay us a visit in the northeast… and putting them into piles: save, toss and donate.
Why the rush? Why now? Because you only have 62 days to incur additional charitable deductions for the calendar year 2007. Tax professionals know this. Charitable organizations know this. And now you do, too.
Charitable donations are a good way for many taxpayers to increase deductions and get a warm fuzzy or two in the process. Whether you donate cash or goods (like our used clothes and toys), you can take these deductions on your tax return – but only if you itemize.
[click to continue…]
It’s always fun when you can participate on your fellow blogger’s sites. That’s why I’m excited to be a featured guest blogger over at Darren Rowse’s excellent Problogger site. Check it out, leave a comment or two. Make us all happy.
Remember that Staples ad where the parent runs down the aisle tossing school supplies into the cart while “It’s the Most Wonderful Time of the Year” plays in the background. That’s how I feel about this time of year.
As the parent of three children, I love back to school. I crave the sense of normalcy and order that it brings to my house. Summer to me, is chaos. Just hot, sticky chaos. But back to school? There’s a schedule. Every day, there is a sense of purpose. My oldest daughter scrambles out of bed in the morning with a plan: get dressed, pick up the backpack and head out to school. And this year, my youngest daughter who very matter of factly accused me of keeping her out of school on purpose is starting preschool a few days per week. There are school events: picture day, picnics and dinners. It is a thrilling season.
Until the tuition bill comes.
As I might have mentioned once or twice before, I live in Philadelphia (get used to more references – football season is starting, the Eagles are playing and I have Donovan McNabb in my fantasy football league). For reasons that are more complicated than a blog post or two can cover, I choose to send my children to private school rather than public school. This is not an easy thing for us to do financially, and it will become more difficult as my children get older. It is, as I’ve posted about before, part of the difficulty of being middle class in America.
And each time I try to sort out whether this is the right thing to do, I realize that, as a nation, I still can’t figure out our priorities. The feds don’t give you any kind of break for private school tuition: if you pay for private or parochial school, no deduction. Yet, since I can keep my child out of school in the state of Pennsylvania until the age of 8 (!), if I paid for private childcare at home instead of school, that would be deductible. Oh yeah, you read that right: it’s better from a tax perspective to keep my child home for years and pay for childcare than to send her to private school. Is that smart tax policy?
And if I buy a more expensive home in a different school district, the interest from the mortgage interest is deductible. And how much “extra” home could I buy? The interest equivalent of tuition for my three children is about $450,000. Put another way, inflating the amount that I am willing to spend on my home by $450,000 results in additional annual mortgage interest equal to the cost of tuition for my children – and it’s deductible. How deductible? I can deduct the interest of a home worth up to a million dollars – a million. So instead of investing in education, I should invest in real estate according to current tax policy. Kind of makes you understand how we got into this sub-prime fiasco, huh?
Don’t get me wrong. I love my daughter’s school (I’d better, I signed up to be class parent this year). I value education. I make sacrifices so that my children can go to a good school (you will not be seeing me in these Jimmy Choo shoes anytime soon). But I just have to wonder about the direction our country is headed when we’re willing to subsidize houses, cars and even washing machines through tax incentives – but not education.
Well, the feds do offer some tax incentives for college. I guess that’s something.
