While alimony can help you bridge the gap as you attempt to get back on your feet after a divorce, it's important to keep in mind that the receipt of these funds carries with it many tax obligations as well. Although property settlements or child support are both non-taxable, alimony is the complete opposite.
In fact, under the Internal Revenue Code, not only is alimony seen as a taxable type of income for the person who receives it, but for the ex-spouse paying, it is a deduction which they can claim when filing their taxes. As a result, failing to file taxes on alimony received as income can result in red flags for the Internal Revenue Service (IRS).
This is because, when filling out the IRS form 1040, on line 31b, it requests the social security number of the recipient of the alimony. Any failure to provide this number to the payor of the alimony, for example, your ex-husband, can result in a $50 fine. And, for your spouse, any failure to document your social can result in not only a fine of $50 for them, but also an inability to take a deduction for alimony in the future.
In any case, if the IRS were to see that your spouse took a deduction for alimony and your return did not reflect receipt of anything, this would definitely raise red flags for them. It would almost assuredly result in a IRS audit.
There are some ways to continue receiving alimony and not have to pay such steep penalties for doing so, though. One way has to do with when and how the divorce decree or written settlement are structured. Any alimony received prior to the execution of either one of these documents is not considered taxable under IRS rules. Accepting alimony as a lump sum in lieu of a division of assets can help keep your taxes low as well.
As if justifying why you should receive alimony were not difficult enough to prove, devising a strategy to such compensation with the lowest tax implications is even more difficult. This is why having an experienced Fort Meyers, Florida, divorce attorney on hand to analyze your divorce case is in your best interest.
Source: forbes.com, "Seven key things women need to know about the tax implications of alimony payments," Jeff Landers, accessed May 12, 2017