It can be important for North Carolina divorcing spouses who will be paying alimony to pay close attention to tax law. By arranging to treat alimony in specific ways in the divorce settlement, spousal support will be recognized as tax-deductible for federal income tax purposes. Because the requirements can be specific, alimony deductions can be the subject of disputes. However, there are methods that divorced taxpayers can use to make sure they meet the federal guidelines.
There are certain issues that are used to determine whether spousal support payments can be deducted from federal income taxes.
In the first place, the payments must be part of and made in accordance with a written divorce agreement. Furthermore, these payments must be made directly to or on behalf of the former spouse receiving the benefit. Some payments to third parties can be counted in this context, so long as they are specified in the written divorce agreement or made according to a request.
In order for alimony to be tax-deductible, the payment obligation must formally end on the death of the recipient. This clause can be the cause of many denials if it is left out of the divorce agreement.
Payments must be made in cash or a cash equivalent and cannot also be considered child support. The written agreement comes into play in other ways as well. The agreement must not contain language that excludes support payments from being considered alimony for tax purposes. And after the divorce, the parties cannot live in one household or file a joint tax return.
These regulations may not seem complicated, but can lead to pain if followed incorrectly. As a result, a person who expects to be paying alimony may want to have an attorney prepare the written agreement.