Arizona couples whose marriages are ending can benefit from arranging to treat spousal support in specific ways in order to make the payments tax-deductible. The subject is the source of frequent disputes between the IRS and divorced taxpayers, but there are ways that people paying alimony can help to ensure their payments are properly deductible.
There are seven requirements for spousal support payments to be deductible on federal income taxes. First, the payments must be made according to a written agreement for separation or divorce. In addition, the payments must be made to or on behalf of the former spouse. Some payments to attorneys or mortgage lenders can be counted if they are specified in the written agreement or made on request.
Furthermore, the obligation to pay must end upon the death of the recipient. In addition, payments must not be considered child support and must be made in cash or its equivalent. For the payments to be deductible, the divorce agreement cannot exclude them from being considered as alimony or label them non-taxable for the recipient. In addition, the parties cannot file joint tax returns or live in the same household.
While these rules may seem straightforward, there are a number of specifics that can trip up well-meaning taxpayers. For example, the structuring of alimony payments around children’s ages can lead to a portion being considered non-deductible child support. This can be important for both the recipient and the payer. As a result, people who are facing this type of issue might want to have their attorneys draft the proposed agreement with language that meets these requirements.