Alimony and child support payments are parts of many California divorce decrees, and they may represent significant ongoing expenses. To help reduce the overall costs, alimony payments can be considered tax deductible, but child support payments are not. It is important for a person to understand the complicated differences between the two.
How to properly deduct alimony from taxes depends on how the divorce agreement was prepared. In some agreements, child support and alimony are clearly and separately defined. This creates a situation of fixed child support. A person cannot deduct any payments that are fixed child support, but the amount is generally easy to determine and separate from other payments.
Things become more complicated when all the payments to a former spouse are lumped together. This creates the possibility of deemed child support. Deemed child support occurs when an amount of money is considered child support even though it is not explicitly labeled as such in the agreement. This is usually spotted by looking at how the payments are reduced due to the child’s life events. Emancipation or reaching the age of majority are common reasons. For example, if payments are set to reduce by $2,000 when a child turns 18, then that money is deemed child support.
Failure to properly calculate deemed child support and alimony payments can leave people with a nasty surprise on their taxes, especially if they are audited. It is better to prepare for these issues ahead of time. Having a properly structured divorce agreement that has been reviewed by the payer’s attorney can be advisable.
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