When your divorce finalizes, you may find yourself handed a spousal support order. This will no doubt have some affect on your monthly budget, if your alimony order stipulates monthly payments, or you may face a one-time lump-sum alimony payment.
But beyond its immediate impact on your finances, how does alimony affect your taxes come tax return season?
As you work hard to get back on your feet and move past your divorce, it is important to remember the rights and responsibilities that your spousal support order grants you.
The good news is that, generally speaking, alimony is tax deductible. However, like all tax-related matters, there are many guidelines and requirements.
If you have any concerns about the long-term consequences of your spousal support order, be sure to consult with an experienced attorney who understands the nuances of New York divorce law and the family court system.
Deducting alimony means meeting the requirements
In order to properly deduct your alimony payments in your tax return, your circumstances must meet several guidelines, otherwise the IRS may reject the deduction. Also, it should go without saying, but it is always wise to consult with an experienced tax preparation professional before making any decisions about how to file your taxes.
While it may seem obvious, you cannot deduct your alimony from your income if you and your former spouse plan to file your returns jointly. In general, it is inadvisable to file a joint return after the divorce finalizes, but if you do choose to do this for some reason, you cannot also deduct your alimony payments.
Furthermore, you and your former spouse may not still remain in the same household if you wish to deduct alimony. The IRS finds this arrangement too likely to promote commingling of assets.
Recent guidelines indicate that you must make the payments in cash, or by check or money order. While relatively new peer-to-peer money transfer services like Paypal, CashApp, and Venmo may seem like the most convenient way to make your payments, you should consult with an attorney to make sure that making payments this way does not endanger your ability to deduct your payments.
It is also important to understand the differences between a divorce settlement, child support and alimony. Your divorce decree cannot call your alimony payments something other than alimony or spousal support if you want to deduct them.
What costs are not deductible?
While proper alimony payments are deductible, not all similar expenses receive the same treatment under the law. If you plan to make these deductions, you should consider consulting with your attorney before you finalize your divorce settlement to maximize deductions in the future.
For instance, child support is not deductible. Similarly, other types of payments you may make as a part of your divorce settlement, if they are qualified as something other than alimony, are not generally deductible.
Be sure to consult with an experienced attorney and tax preparation professional before you apply these guidelines to your tax return, to protect your rights and your future.