Take care when claiming alimony deductions

One of the few silver linings of having to pay spousal support is the ability to deduct those payments from one’s Adjusted Gross Income, or AGI. In some cases, this tax deduction can make a big difference in one’s overall tax outlook. However, for those in New York who are planning to make use of the alimony deduction, it is important to understand how doing so can raise a red flag with the Internal Revenue Service.

Claiming alimony payments as a deduction requires that the filer submit a social security number or tax identification number for his or her former spouse. This allows the IRS to match the amount claimed as a deduction, with the amount that the recipient claims as income. However, if those two numbers do not match, both returns could be flagged for further review.

In 2010, over half a million tax returns were filed in which alimony was claimed as a deduction. Of those, nearly half did not list the same amount as that claimed by the recipient. From the perspective of the IRS, this may represent a significant loss, as well as a great deal of potential fines. While audits concerning these discrepancies are still relatively uncommon, it would not be surprising if the IRS decides to turn additional focus toward these discrepancies.

For those in New York who are preparing to divorce, it is important to understand how alimony will play into one’s tax planning in the years to come. It can be difficult to control whether one’s spouse files a proper tax return. However, knowing that a discrepancy could trigger an audit should underscore the importance of ensuring that one’s own return is accurate.

Source: Forbes, “Alimony Deduction Requires Good Substantiation“, Peter J. Reilly, Aug. 13, 2014