When two people fall in love, old clichés would suggest that they have been struck by Cupid’s arrow. Conversely, it seems as though the Internal Revenue Service may be drawing back its bow and taking aim at newly divorced couples.
A report from the Journal of Accountancy shows that the IRS is dedicating efforts to track down people who have misallocated taxable income as it relates to alimony payments. This is apparently a reaction to a report from the U.S. Treasury Department study allegedly showing commonplace discrepancies in tax filings made by divorced people.
As a general rule, a person who pays alimony to his or her ex-spouse can deduct that amount from taxable income. Individuals receiving alimony payments, on the other hand, should claim payments as taxable income. Of course, it makes sense that the amounts deducted and added to income correspond between formerly married couples.
For a person filing income tax returns for the first time after divorce, the process may not be entirely clear. As such, it’s understandable why someone could make an honest mistake when trying to incorporate alimony payments into his or her tax filing.
At the same time, people may not understand that they have might have tax obligations when alimony is included in a divorce settlement. For those who are unfamiliar with tax and divorce law, comprehending the complex components of an agreement may not be easy.
Of course, newly divorced couples may want to receive clarity surrounding the tax implications of divorce from the start in order to avoid issues down the road. Unfortunately, however, even proactive people can get caught up in the complex web of tax regulations.
Source: Boston.com, “The IRS thinks you’re cheating on your alimony,” Chris Chen, May 29, 2014