One of the common questions people have about alimony and taxes is whether alimony is deductible. The general assumption is that it is deductible, which is right, but not in all circumstances. Specifically, your alimony payments are only deductible if you:
Pay In Cash
If you want to deduct the alimony payments, then you have to make them in cash. This includes money orders and checks, but not payment in kind or service. Therefore, don't expect to give your former spouse a car and use its market value to make a tax deduction. Also, you can't renovate your spouse's kitchen, describe the service as alimony and expect a tax deduction.
Follow the Decree to the Letter
Another condition is that you have to pay the alimony exactly as described in the separation agreement or divorce decree. If you are supposed to pay 1,000 dollars per month, then that is what you should pay and mark as tax-deductible alimony. Even if you are feeling charitable, you can't up your payments to 1,500 dollars and deduct it as alimony. This also means that you can't make upfront payments and expect alimony tax deductions.
File Separate Returns
This is a straightforward requirement – if you want to deduct the alimony payments, then you can't file a joint income tax with your former spouse.
Separate Them from Child Support
If you are paying both child support and alimony, then you have to keep them separate. Child support payments are not tax-deductible, so if you combine them with alimony, then the whole amount becomes nondeductible.
It isn't always that straightforward either. There are some actions that may spur the IRS to classify your alimony (or part of it) as child support, even if that wasn't your intention. For example, including a clause (in your divorce agreement) that ends alimony when a minor child becomes an adult makes the alimony seem more like child support.
Lastly, you shouldn't expect alimony tax deductions if you are still members of the same household. Just because you are legally separated doesn't qualify you for the deductions. You can only execute alimony deductions if you are living apart because physical separation is required.
As you can see, you don't handle your alimony payments as you wish and expect to enjoy associated tax deductions. You have to comply with the legal requirements of your alimony payments, as well as the requirements of the IRS. Consult a company such as The Law Office Of James R. Kennedy Jr. for any specific questions you may have about your case.Share