Unlike child support, paid alimony is tax deductible. For recipients, payments are taxed as income. Legal experts say federal tax deductions for paying spousal maintenance are not automatic.
Lawyers who specialize in divorcing couples' tax issues point out the best time to consider tax implications for alimony is before a final separation or divorce settlement. Deductions for alimony payments are conditional. Spousal support is deductible, if the payments meet certain terms under current federal laws. Failing to meet any one of the terms can disqualify spousal maintenance payments as deductions.
Alimony must be acknowledged within a legal separation or divorce agreement and how much an ex-spouse is due and when must be determined. Anything in the agreement that is not labeled alimony becomes part of a property settlement or child support and is not a deductible expense.
Although not all alimony must be paid directly to an ex-partner, the payments must benefit a former spouse. Third-party payments may qualify as alimony as long as a separation or divorce agreement details the payments or an ex gives written approval of the arrangement.
Any payment made to a former marital partner for child support cannot be deducted. Child support is nondeductible for those who pay it and is nontaxable for those who receive it.
The terms of an agreement between divorcing couples must stipulate that alimony payments end upon a recipient's death. Experts say this is one of the most overlooked IRS regulations and a source of future tax grief for spousal support payers who neglect to include it in a settlement.
Alimony may not be claimed if a couple lives together during a legal separation or divorce. Deductions are also disqualified if the couple files joint tax returns.
Experts recommend hiring a tax and legal professional to provide guidance through complex and long-term issues of the deductible and nondeductible aspects of divorce, alimony and child support.
Source: smartmoney.com, "How to Deduct Alimony Payments on your Taxes," Bill Bischoff, Sept. 28, 2011