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Alimony: To be taxed or to avoid taxes?

Alimony is a word many people don't like to bring up during divorce, because it can have lasting implications. For those who have to pay alimony, it seems like they'll never escape the marriage they were once in. For those receiving it, it's a lifeline while they get back on their feet, but it's also a stress because it's taxable income.

The person who pays alimony can deduct alimony payments from their taxes. This is possible as long as you and your former partner do not do your taxes together, the alimony is paid in cash, the alimony is identified as such in your divorce documents and the payment isn't child support.

Alimony recipients have to claim alimony on their taxes as taxable income. You need to report the alimony as income on line 11 of your Form 1040. Failing to do so can result in penalties. Additionally, you'll need to provide your ex-spouse with your Social Security number for tax purposes related to the alimony payments.

If you're going to be receiving alimony or paying alimony, it's a good idea to talk to your attorney before you finalize your divorce. Once your divorce is final, you can't change the arrangements you have without going back to court. It's a good idea to be certain that you're okay with the tax implications of receiving or paying alimony and that you'll be getting what you need despite the taxes you pay. Your attorney has more information about alimony and what it can mean to accept it or to have to pay it out over time.

Source: FindLaw, "Alimony and Taxes," accessed Nov. 02, 2017

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