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As the federal tax filing deadline nears, many people who got divorced last year, or those who are going through a divorce might be thinking about how a divorce affects their tax filing. People in Michigan who have an agreement on alimony will want to pay special attention to their taxes. Alimony can be considered in taxes only if it is through a formal legal agreement.
Because the IRS only recognizes alimony that is mandatory, it is important to make sure that proper legal documents are in place to prove that alimony is paid and received as determined through a legal agreement.
These legal agreements could include a divorce decree, or something such as an alimony decree. Once a document is in place mandating alimony payments, the IRS will consider the payments during tax calculations. Those who pay alimony should be able to deduct their payments from their taxes and those that receive payment might have to claim the payments and pay income tax on the money received.
Money that is given to an ex-spouse out of good will may not be able to deduct the payment on their taxes. They person receiving payments will also want to distinguish what constitutes an alimony payment versus a child support payment. These two payments act differently with regards to taxes, so it is important to know what the money received counts as. This is especially important if a former spouse neglects part of either of the payments.
Having a divorce decree that spells out specific details of payments will help prevent problems while filing for taxes.
Source: Forbes, “Taxes From A to Z: A Is For Alimony,” Kelly Phillips Erb,” March 3, 2012
