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Informative Articles

A Big Tax Loophole Just Got Bigger
Believe it or not, there are ways to convert taxable income into non-taxable income, without any fear of an IRS audit. Here's one of my favorites. It's been part of our beloved tax code for over 30 years, yet many still don't take advantage of it. ...

Defining a Long-Term Investment in the Stock Market
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Tax Deduction for Alimony Payments? - Yes!

Over 50% of marriages end in divorce in the United States. Many divorce decrees include provisions for the payment of alimony. The IRS takes the position that such payments constitute a form of income and create an alimony tax deduction for the person making payments.

According to the IRS, alimony payments are taxable to the recipient in the year received. In turn, the person paying the alimony can claim a deduction for the payments if the following tests are met:

1. You and your spouse or former spouse do not file a joint return with each other,

2. You pay in cash (including checks or money orders),

3. The divorce or separation instrument does not say that the payment is not alimony,

4. If legally separated under a decree of divorce or separate maintenance, you and your former spouse are not members of the same household when you make the payment,

5. You have no liability to make any payment (in cash or property) after the death of your spouse or former spouse; and

6. Your payment is not treated as child support.

If you are receiving or paying alimony, you must use Form 1040 for your personal taxes. Regardless of income levels, deductions or miscellaneous tax issues, you cannot use Form 104A or Form 1040EZ.

In preparing your tax return, the person receiving alimony will report the information on line 11 of Form 1040. That person must also provide their social security number to their former spouse or face a fine of $50. The person paying the alimony can claim the deduction on line 34a of Form 1040.

About the Author
Richard Chapo is with Business Tax Recovery - Obtaining tax refunds for small businesses for overpaid taxes. Go to our article section to discover tax strategies and deductions.

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