Phone: 301-738-7770
Steven J. Gaba
Phone: 301-738-7770

Divorce sometimes doesn't sever tax connections

The end of a Maryland marriage marks the end of most connections between a husband and wife. For those without children, divorce provides a fairly clean break, and both parties are able to move forward with very little need to interact with one another. In cases in which alimony plays a role, the connection extends, at least until such time as the payments are no longer required. As long as money changes hands between former spouses, there will be a connection, at least in the eyes of the Internal Revenue Service.

Spouses who receive alimony are required to claim those payments as income. The funds are then subject to taxation. On the other hand, the party who pays alimony is allowed to claim those payments as a tax deduction. This can be a significant benefit, and can reduce the overall tax obligation of the paying spouse.

When claiming an alimony deduction, the party completing the return is asked to submit the social security number of the recipient of those payments. In this way, the IRS is able to compare the returns to ensure that the numbers provided match. In reality, however, almost half of all returns that include alimony do not list the same number. The difference could mean significant losses to the IRS, in the form of unearned deductions as well as loss of tax revenue when the full amount received is not properly noted in the return.

It is not always possible to ensure that one’s former spouse is submitting an accurate tax return. However, Maryland residents should consider sharing their calculations with their former partner before filing a return. In addition, knowing that a post-divorce tax discrepancy could lead to an audit by the IRS, individuals who include alimony within their return should take extra care to ensure that all aspects of their return are correct, and could withstand scrutiny by an IRS agent.

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

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

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