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Alimony payments and tax deductions

Seemingly straightforward tax deductions may prove to be not so simple when it comes to tax reporting. For example, as a Michigan resident it is allowable to deduct alimony payments from your taxable income. Yet as easy as this may sound, there are a number of federal requirements one must follow before taking such a deduction.

As alimony is an above-the-line deduction, it does not require itemization. However, for the payer of the alimony to deduct payments, the recipient of the alimony must report such payments as income. If the deduction on the payer’s return does not match up with the reporting of income on the recipient’s return, there are chances that both the payer and recipient may face an IRS audit.

Taxpayers must fulfill a number of requirements before an alimony deduction is allowable. For example:

  • Any alimony payments need to be a part of a divorce or separation agreement.
  • It is required that such payments be made on behalf of the former spouse. If such payments are made to third parties, these must be made pursuant to the divorce or separation agreement and be on behalf of the former spouse.
  • Any payment obligations must cease if the former spouse dies. Otherwise, the IRS will not view it as an alimony payment.
  • All alimony payments must be cash or a cash equivalent.
  • Child support payments are different from alimony and therefore not deductible. If there is a deduction of a so-called alimony payment after a child leaves the recipient’s home, the IRS may consider it a child support payment instead.
  • There can be no reference in the divorce agreement stating that such payment is something else other than alimony.
  • Neither payer nor recipient can reside in the same residence or jointly file a 1040 for an alimony payment to be deductible.

It is always better to get it right to begin with than risk an audit down the road. And a tax law attorney would be knowledgeable concerning these distinctions.

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