Did you know that alimony impacts your taxes? Alimony must be correctly reported on your tax return, or you risk a tax audit, tax penalties, and a frustrating mess!
Payers of alimony: If you pay alimony to an ex-spouse, you can deduct the alimony payments on your tax return.
Recipients of alimony: If you receive alimony from a former spouse, you are required to report those payments as income.
You’ll want to be aware that when you prepare your tax return you’ll need to list the social security number (or other taxpayer ID number) of your ex-spouse. That’s because the IRS tracks the amount reported by the payer and the amount reported by the payee. If the two numbers don’t match, the IRS will likely initiate a correspondence audit to address the discrepancy, and there may be penalties assessed on whichever party’s return included the error.
Keep in mind that these rules apply only to alimony, not child support. Informal agreements and voluntary payments are also excluded from the requirements that apply to alimony payments. Alimony encompasses payments required under a divorce decree, separate maintenance, or court order (including temporary actions).
The distinctions between what is and is not alimony can be quite confusing, so if you’re not 100% certain whether you should be reporting a specific payment as alimony on your taxes, make sure you talk with a tax help professional. Taxation Solutions, Inc. has a team of qualified specialists available to guide you through this complex situation. Our goal is always to make it as easy as possible for you to avoid tax problems, putting our 40+ years’ experience to work to bring you knowledgeable, compassionate tax advice. Call now!