Are your alimony payments tax-deductible?

Alimony payments can be expensive in some scenarios, so many divorcees may question whether these payments can be deducted from their taxes. But the answer is: it depends. There are a number of rules governing whether these payments can be deducted and a strict number of conditions must be met before individuals meet the eligibility requirements.

First, in order to meet the current requirements, the payments must be supported by a written order from the court in order to be considered alimony, according to SmartMoney.com. Additionally, the payments must be made directly to or on behalf of an ex-spouse, meaning that checks sent to a third party, such as an attorney, count if they are provided to a former husband or wife as alimony.

In order to qualify, divorced or separated spouses must also retain separate residences and cannot file a joint tax return, the news source explains. Payments must also be made as cash or a cash equivalent and cannot count toward child support. To add further, court records and agreements cannot define the payments by another name other than alimony, otherwise the amount cannot be deducted. Payments that are considered deductible must also be reported by the taxpayer's ex-spouse as taxable income.

Lastly, the requirement of a taxpayer to make alimony payments must end if his or her ex-spouse passes away, according to Smart Money.

All of the above conditions must be met for the deduction to be valid. Some issues taxpayers often run into are separating alimony payments from child support. It's important to keep in mind that child support and other forms of property-related payments are not tax-deductible. In order to simplify the process, it's important that clear payment definitions are established in separation or divorce agreements to avoid any confusion.

For example, alimony payments should be defined and listed separately from separate payments that are defined as child support or property settlements. It's also important to keep copies of these agreements and checks written to a former spouse. Taxpayers should keep these documents in their records and provide them to a tax preparer during filing season to support their deductions.

There are also rules or stipulations that may come into play when taxpayers are deducting alimony, so it's imperative to speak with a tax preparer before claiming payments.

About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.

Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.
 
Posted To: Tax Ranger's Blog By: Tax Ranger On: Wednesday, November 09, 2011
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