Alimony is a funny thing. Typically the person paying it hates the very idea of it and the person receiving it loves that it’s still around. While the tables have turned and alimony is no longer just an ex?husband to ex-wife transaction, other aspects have also changed. Alimony is not automatic, not forever and isn’t affected by fault. One thing that has remained steady throughout time is the tax implication that alimony has on both parties involved.
Alimony is a payment made by one spouse to the other after the dissolution of their marriage. It essentially serves as a means of temporary support for the lesser earning spouse. Since it is designed to make up for the individual’s lack of income, the recipient should count it as taxable income. Likewise, the payer of alimony can consider all payments as tax deductible.
It is important for both parties to keep accurate alimony records regarding payments and receipts. In the event the IRS finds a discrepancy in record keeping, the payer could lose out on the deduction or be forced to pay additional payments for those not accounted for. The recipient should keep accurate records of every payment received. If alimony stops before it is supposed to, having accurate records may help the family court sort out the issue faster.
While alimony is pretty straight forward, knowing what records the IRS may ask for, if there is an issue regarding payments and receipts, is not. Sitting down with your divorce attorney can help you create a system of record keeping or address the issue of missing payments so that you and your money is protected.