Tax season is right around the corner. For divorcing couples in Massachusetts, something to think about is how alimony payments will affect tax filings. There are certain tax advantages for being a payer and some disadvantages for the receiver.
Those who are granted alimony as part of their divorce settlements will be required to report the money received as income — which is the biggest disadvantage to being awarded this type of financial support. While being granted alimony can be a great financial benefit, it can also mean that one may have to pay more in taxes than was originally planned. Taxes are not automatically withheld from alimony payments like they are from a standard paycheck. Accordingly, alimony recipients can help themselves and avoid having to pay a significant lump sum in taxes in April by making estimated payments throughout the year.
Those who are ordered to pay alimony actually have the advantage when it comes to tax filings. Alimony payments are tax deductible, which can help lower one’s taxable income. Of course, to get the deduction, one will have to know the recipient’s tax ID. Without that, the deduction will not be allowed.
The tax advantages and disadvantages of alimony are rarely discussed before requesting this benefit as part of a divorce settlement. Most recipients just tend to consider how it will help them cover their day-to-day expenses, and it is something that many payers resent having to provide. Understanding how it will affect taxes is important, however, as failing to report alimony properly to the IRS will only cause trouble for one or both parties. An experienced attorney can provide divorcing couples in Massachusetts with more information about this topic and the other advantages and disadvantages of paying or receiving alimony.
Source: finance.yahoo.com, “How alimony affects taxes for you and your ex“, Kay Bell, Feb. 10, 2017