The following information is intended for educational purposes and you should speak with your CPA, Accountant or Tax Adviser before taking action.
There are basic rules that alimony recipients and payors need to follow to ensure their payments receive the proper tax treatment.
Definition: Alimony is a payment to a former spouse pursuant to a separation agreement. A big tax advantage of alimony is that alimony is tax deductible for the payor and must be included in the recipient’s income.
To ensure your payments qualify as alimony, make sure the following are true:
1. Form of Payment: In order to qualify as alimony your payments must be made in cash, check or money order. The following is NOT a valid form of payment for purposes of alimony: transfers of property, performing services, allowing the recipient to use your property or transferring a debt instrument.
2. Terms of Payment: Although this seems obvious, your separation agreement CANNOT state that payments are not alimony.
3. Living Arrangement: In order to qualify as alimony you and your spouse generally CANNOT occupy the same household.
4. Length of Payments: If you are obligated to make payments to your spouse’s estate after he/she passes, these payments will likely not qualify as alimony.
5. Child Support: If the payments under your separation agreement are defined as child support, then you likely CANNOT claim them as alimony.
As you prepare to file your taxes, take some time to sit down with your tax adviser to ensure you receive the full tax benefit of your alimony payments. IRS Publication 504: Divorce or Separated Individuals 2013 can further assist you as you prepare to file your taxes.
I wish you all the best,
Scafidi, Juliano & Hurd, LLP
310 Washington Street, Suite 201
Wellesley, Massachusetts 02481
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