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Wednesday, September 26, 2007

Tax Advantages to Alimony Payments

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Alimony is monies awarded to the wife or husband upon a divorce. The receiving party receives a monthly sum of money determine by the courts. This amount reflects a percentage of the ex-spouses wages as well as the receiver’s income. For instance, an ex-husband might have to pay a percentage of his wages to the ex-wife even if she works. Alimony allows her to live in the lifestyle she was accustomed to before the divorce. This amount is separate from child support and offers different tax breaks for the payer. The receiver however, has to claim the alimony as other income.

The ex-spouse that is required to pay alimony can claim the payments for the year on their taxes as a reduction of tax liability. The receiver is responsible to claim the money and pay taxes on the money received. Therefore, alimony for ex-spouses allows taxpayers to deduct this amount from their income if they pay it to an ex-spouse. The receiver however, does not claim child support unless they claim Homestead in most circumstances. This advantage does find more ex-spouses wishing to pay alimony instead of child support so they can use it as a reduction of their tax liability.

The advantage of alimony benefits the payer more so than the payee. As for income reporting purposes, the payer can claim alimony as an income for receiving credit or loans. However, alimony is only paid as long as the payee does not remarry in most instances. It also may cease if the payer no longer has the income that they did when the divorce was finalized. Therefore, the benefits and advantages do have a downside. It is also possible to reduce alimony if the payee makes more money than what they did when the divorce was finalized.

As for alimony itself, the benefits lie with the payer more so than with the payee. The ability to claim alimony payments on your taxes helps reduce your tax liability, therefore, saving the taxpayer money. Child support however, is not claimed on the payer’s taxes and you pay the full amount of taxes on that money.

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