Alimony is a payment to a spouse or a former spouse under a divorce or a separation decree. Alimony is tax deductible for the payer and is considered taxable income for the recipient. Child support is neither deductible nor taxable. It's neutral money.
Another condition for alimony is that it should be made in cash (checks and money orders) and cannot be paid in the transfer of property or services. The money paid must be based on a divorce or separation agreement or decree.
The one thing your client has to be careful about as mentioned before is that child support should be kept separate from alimony or the IRS will assume your client is trying to save him or herself some tax dollars illegally by giving the alimony payments the cover of child support. One way for the IRS to doubt your client is when the alimony payments stop once the child gets married or leaves the house. Also, any kind of payment that the payer makes to the recipient that helps the child more then the ex-spouse or spouse is considered child related.
These are just a few things to keep in mind when your client is making alimony payments.. Following is a list of things that are not considered alimony payments:
Now that we know the difference between alimony and child support, the best way to save money on taxes is by combining both. For example, a couple gets separated and the wife receives custody of the children. She needs alimony and child support to support herself and her children. The husband gives her $11,000 in alimony and $11,000 in child support. There is not a lot of tax savings in that because only the alimony is deductible or taxable. Now if the couple decides to sit down and save themselves some money, they can combine both payments into $22,000. In addition, the husband can up the payment for another couple of thousand dollars, making the tax savings tremendous because now the whole $24,000 is tax deductible for the husband and the wife gets more money out of the deal. The whole payment can be treated as alimony. If they had not decided to up the alimony payment for another $2000, the only winner would be the husband whose tax savings would be doubled. But now the wife who is taxed on this income gets more money. Everyone goes home happy.