Tax Fact: Alimony or Child Support
When it comes to taxes there is a major difference between alimony and child support. Child support has no effect on taxes for the person paying or receiving it. However, alimony is much different. The person paying the alimony is allowed an “above the line” deduction, meaning that they can deduct the amount paid even if they do not itemize their tax deductions. On the other end, the person receiving the alimony must recognize the payment as income. This is a very standard principle of taxes that when someone is getting a deduction it is usually because someone else has income. The person paying the alimony must list the social security number of the person they are paying, which allows the IRS to easily verify if the income is being recognized.
When alimony is being paid, documentation is key. If there is ever an audit, you have to be prepared to show that the payments being made are in fact legal alimony. If someone helps out with the bills or any other informal arrangement, this is not deductible alimony. Also, if alimony payments are mixed with child support the IRS will look to marital settlement agreements or other court documents to make sure the proper allocation is being applied to the payments. If you have questions about alimony payments or how other financial arrangements related to a divorce effect your taxes, contact us at Hone Maxwell LLP today for an analysis of your case. Also, you can follow us on twitter @HMLLPTax or facebook at www.facebook.com/HoneMaxwellLLP for more tax tips and the latest updates on tax news.