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Planning for IRS treatment of alimony payments

For Maryland individuals who are required to pay money to ex-spouses, the payments may or may not qualify as tax-deductible. Alimony payments are generally deductible from the income of the payer, and they count as income for the payee. In order for payments to qualify as tax-deductible alimony, a few requirements must be met. First, the payment must be made in accordance with a written separation or divorce agreement.

Second, the money must be paid to an ex-spouse, either directly or on behalf of that person. Payments to third parties like lenders or attorneys may qualify if they are made on behalf of an ex-spouse pursuant to a written request or to the divorce agreement. Third, payment obligations must cease on the death of the ex-spouse. This latter requirement is among the most common reasons for the denial of alimony deductions by the IRS.

Fourth, the payment cannot be for child support and, fifth, it must be made in cash or a cash equivalent. The sixth requirement is that the written separation or divorce agreement cannot dictate that the payments are not alimony. Finally, the former spouses cannot have lived in the same household or filed a Form 1040 jointly since they were legally separated or divorced.

Child support payments cannot be deducted as alimony. Fixed child support refers to child support payments explicitly called for in a separation or divorce agreement. Other payments may be deemed child support if they are affected by the child attaining the age of majority, leaving the household, marrying or dying. Individuals who have questions about the likely treatment of a payment by the IRS may want to consult an attorney who has experience with these type of high asset divorce legal issues.

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