If you are divorced and have young children, there's a good chance that you are paying or receiving alimony or child support (or both) under a divorce decree. What's the difference? The distinction is important to the IRS.
Currently, alimony is deductible by the party who pays it and taxable to the party who receives it. Child support is neither deductible nor taxable.
Depending on what side of the fence you're on, you should negotiate for payments to be characterized as either "alimony" or "child support" as part of a divorce agreement.
How to qualify for alimony deductions
Just saying that payments are alimony won't suffice. According to the IRS, these are the requirements that must be met if you're hoping to qualify for alimony deductions:
The following alimony payments aren't considered deductible:
According to the new tax bill, alimony will not be deductible or taxable starting in 2019. This may also affect divorce and separation agreements executed in 2018 and modified in 2019 and beyond.
Keep these rules in mind when your 2017 tax return is filed. We can help you determine tax issues related to your alimony payments. Give us a call.
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