Deducting spousal maintenance "in-kind"....is this possible?

Question

Here's the deal. I was paying $1200/monthly in alimony. Then, b/c my ex can't come up with the $500 in child support, the Court ordered me to reduce my alimony by $500, making it $700/monthly. So, as I see it, I should still claim 1200 as expense and declare the 500 as income. Or do I just claim the 700 as expense, since I have received no actual check from her in child support? (Actually, I would like to claim the 1200 as alimony, but my checks only show 700.). What do I do? If you are a tax consultant, I would be happy to compensate you and discuss this over the phone. But I am happy to hear from anyone!

Answer 1

Well, that's a moot point, since child support payment are not "income", and don't appear on your tax return.

So you just deduct the alimony that you actually paid.

Answer 2

Here's the way divorces are taxed:

1) When you settle the marital property, the settlement itself is a non-taxable event. No one gets taxed on the beds and dvd's they take away, and none of them are tax deductible, including the dividing up of the cash.

2) Alimony payments of any kind are taxable to the person receiving and tax deductible to the person paying.

3) Child support is non-taxable regardless of how it's paid or received, and non-deductible for the one paying. The only claim a person paying the support might have is the exemption, and this usually applies only if the mother is raising the child on welfare and the father claims the exemption. Otherwise, it's difficult to pass all the dependancy tests.

These rules apply to the written agreement only. They probably won't apply to any amount you pay out of the goodness of your heart. Those are called "gifts" and the first $11,000 each year has no tax consequences.

So the old way for you to do it was to claim a $1200 deduction, and ignore the $500 as non-reportable gravy. Now it looks like you're going to get a $700 deduction and get no gravy. The only way you can claim a full deduction for the $1200 is if the new court order actually says that you can.

If the new court order actually names your alimony as $1200, then you can. If it names your alimony as $700, that's all you can take. (In the first case, your situation didn't change, the court merely allowed you to pay in a different way.)

(Court orders in family matters always serve as the basis as taxable and deductible amounts. The IRS will read the court order and take it literally word-by-word. If I were you, I'd call the IRS and make sure on this to make sure I've interpreted correctly.)

Answer 3

I am not sure I am understanding you correctly. Are you saying that you were paying $1200 of alimony to your ex-spouse, and they were paying $500 in child support to you? If so, you should not have been reporting the $500 as income. Alimony is taxable to the recipient and deductible to the payer. Child support is not taxable or deductible.

My first reaction is that you are now only paying $700, so you will only get to deduct the $700. But, since you are reducing the deductible alimony you are paying, this will increase your taxable income by $500/month.

Does the new court order address this issue? Is there language that indicates that the $1200 alimony and $500 child support are still in place, but that the parties may net the checks? Or does the order state that your alimony is being reduced? I would start there.

Answer 4

You just claim the 700 as alimony paid, since that's all you actually paid.

If you could deduct the $1200 and claim the $500 as income, you'd be in exactly the same place as you are by claiming the $700 adjustment for alimony paid. But child support isn't taxable as income or deductible by the payer.

By the way the court changed things, yes, you did lose the taxes on the $500 a month you used to pay. But look at it this way - you're still WAY ahead since you get to keep the other $500 a month, not just a percentage of it as dictated by your tax bracket, since you weren't getting the child support anyway.

Answer 5

Sorry, but the court has reduced your alimony to $700.00, that's all that you can deduct.

When you claim the alimony deduction, you must provide the SSN of the recipient. The IRS does cross-check these and since alimony is taxable to the recipient there's virtually no chance that your ex will claim and pay tax on money that they didn't receive.

Sounds like your ex snookered you on this. Now their taxable income is reduced by $6,000 per year and they're off the hook for the child support.

The only way you'll get the $1,200 deduction back is to go back to court and have it re-instated. The attorneys must love you guys!