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National Association of Tax Professionals (NATP) Logo

Divorce and the Tax Consequences of Payments

Determining the tax consequences that can arise during a divorce or marital separation can be vital for the financial protection and well being of you and your family. It’s important to understand applicable tax laws before making any decisions.

 
PRLog - Feb. 2, 2011 - Determining the tax consequences that can arise during a divorce or marital separation can be vital for the financial protection and well being of you and your family.  That’s why it’s important to understand applicable tax laws before making any major decisions.

Often most confusing during the divorce process is determining whether a payment should be considered alimony or child support.  Generally, alimony is the amount paid to a spouse for his or her living expenses, education, health or life insurance, property taxes, or mortgage payment. Alimony is not for providing child support.  The person receiving alimony must pay taxes on the alimony in the year it is received, and the paying spouse may deduct the amount in the year it is paid, provided the alimony meets all of the following conditions:

•   The payment is made in a cash form, which includes checks, bank deposits, etc. Payments in the form of such things as bonds, stocks, money market shares, or actual objects are not considered alimony for tax purposes.
•   The payment is made as the result of a legal separation agreement or divorce decree.
•   The spouses do not live in the same household at the time the payment is made.
•   The divorce decree does not designate the payment as nontaxable to either party.
•   There can be no liability for payments after the death of the receiving spouse.

Child support, unlike alimony, is not taxable to the spouse who received the payment, nor is it tax deductible by the spouse who makes the payment.   A divorce decree may specifically call the payment “alimony,” but the payment may have the “characteristics” of child support.  One characteristic of a child support payment might be the designation in the divorce document that the payment be terminated if the child’s situation changes.  

Tax challenges during and following a divorce are common, but they can be minimized with some knowledge about tax laws and IRS procedures.  Financial planning is an important part of the divorce process.  This article contains general tax information for taxpayers.  Each tax situation may be different, do not rely upon this information as your sole source of authority.  Please seek professional advice for all tax situations.  Tax professionals are experts who keep current on tax law changes.  They can save you time and offer insight on how to use the tax breaks available to you.  To find a professional tax preparer, look to NATP whose members subscribe to a strict code of ethics and standards of professional conduct (read them in the Press Room at www.natptax.com).  To see NATP’s list of professionals in your area, visit www.natptax.com and click Find a Tax Pro.

Members of the National Association of Tax Professionals (NATP) work at offices that assist over 11 million taxpayers with tax preparation and planning. The average NATP member has been in the tax business for over 20 years and holds a tax/financial designation and/or a college degree.  NATP has more than 20,000 members nationwide. Members include individual tax preparers, enrolled agents, certified public accountants, accountants, attorneys, and financial planners.  As a nonprofit professional association, NATP serves professionals working in all areas of tax practice through professional tax education, tax research, and tax office supplies.  The national headquarters, located in Appleton, WI, employs over 45 staff members.  Learn more at www.natptax.com.

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Members of NATP work at offices that assist over 11 million tax payers with preparation and planning. NATP has more than 20,000 members. Members include tax preparers, enrolled agents, certified public accountants, attorneys, and financial planners.

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Source:National Association of Tax Professionals (NATP)
Phone:800-558-3402
City/Town:Appleton - Wisconsin - United States
Industry:Accounting, Business, Family
Tags:tax, tax preparation, taxes, tax professional, tax preparer, irs, cpa, accountant, divorce, alimony, separation
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