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What are the tax consequences of alimony payments?

When folks in Longmont think about the obligations that a divorced person might have, alimony will likely be among the first things thought of. The truth is that alimony orders are less common today than they were in the past. Still, if spouses were married for a long time before a divorce, or if one of the spouses left the workforce to care for children or otherwise take care of the household, there is a decent chance that the other spouse will be ordered to pay alimony.

Unlike child support, there are tax benefits to paying alimony and tax consequences for receiving it. Usually, a payer of alimony can deduct the payments at tax time. Similarly, a recipient of alimony usually must report the payments as income on tax forms. Alimony is just like other tax matters in one important respect: Payers and recipients will want to keep records of all sums paid or received.

Why is this? For one, the Internal Revenue Service and the Colorado Department of Revenue may investigate alimony deductions as part of an audit or other investigation. Also, a spouse may challenge the amounts a person claims were paid or received as alimony to avoid an investigation by the tax authorities. One way to deal with this kind of situation is to maintain good records to show to the authorities if they start asking questions.

How long should these records be kept? For tax purposes, they should be kept for at least three years after the tax year in which the payments were made or received. It might not be a bad idea for payers to hang onto them permanently in case an ex-spouse questions whether the ordered maintenance payments were made. Persons who are dealing with tax or divorce-related issues may want to seek out reliable legal sources of information.

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