Tax Mistakes and Alimony Lawyers
Alimony can be defined as an award for support and maintenance that one spouse may be compelled to pay to another after the dissolution of their marriage. Alimony is ordered by the courts as a way to assist the spouse who earns less to start over and establish a means to earn a living. Alimony also prevents them from having to drastically lower their standard of living immediately following the divorce giving them enough time to find appropriate employment or to complete training or schooling to better support them.
Alimony brings its own special tax consequences. Because the paying spouse does not have to pay income tax on their alimony payments, it is often desirable for them to pay more towards alimony than child support. Child support is never a deductible expense, but alimony qualifies as a deductible expense on the income tax return of the paying spouse. Alimony that is received is then treated as taxable income by the Internal Revenue Service (IRS) and must be declared as income when filing your annual tax return.
There are times when the paying spouse might agree to an increase in their alimony payments in exchange for a reduction in child support payment since this will act to reduce their taxable income. Because there is the potential for abuse, the IRS is very sensitive to such agreements and has enacted restrictions on the allocation of child support payments versus alimony.
To qualify for the expense deduction for alimony payments, a court order must be in place. Once the divorce is granted and the alimony payments are ordered, the payments will then qualify as a deduction under the IRS rules. The IRS will review the frequency of the alimony payments to determine if they meet the rules for the deduction.
Problems can arise when support payments are ordered or agreed to and the actual payments are not divided among child support and alimony. This begs the question of whether this payment should be considered deductible by the payer or if it must be reported as income of the recipient. When it comes to allocating alimony versus child support, the IRS will rely upon the specific facts of the divorce and the wording of the divorce decree when making a determination related to deductible expenses and the payment of income tax. In most cases, unallocated payments will likely be considered as alimony, thus causing them to be considered taxable income to the recipient.
In addition, the former spouse must receive a steady stream of alimony payments from the other spouse. Lump sum payments do not necessarily qualify, particularly when they are made shortly after the divorce is granted since these types of lump sums may be a form of property division. The IRS will often treat large payments made in the first few months after the divorce as “front-loading” and may deny the deduction. Front-loading is defined as the concentration of the costs or benefits of a financial obligation in an early period to maximize the tax advantage.
Call Zinda Law Group Today
An experienced divorce attorney can help to identify any potential problems that might arise with regard to alimony. The attorneys at Zinda Law Group of San Antonio can provide advice on what an appropriate level of child support is and can negotiate a payment schedule that will be beneficial to both parties. Call 210-390-0742 to set up a consultation with an attorney and get answers to all your tax and alimony questions today.