How is alimony affected by taxes?
Amy Wechsler’s Answer:
In most instances, the person who pays alimony deducts it from his or her income when calculating income taxes. Then the person who receives that alimony will claim it as income when filing tax returns. There are some exceptions to this, such as when alimony decreases significantly in the first two years that it is paid, or when it is paid as a lump sum. In some instances, parties may decide to make alimony non-taxable to the recipient and non-deductible for the paying party, or they can make a portion of the alimony taxable and a portion of it non-taxable. Whatever they choose, it must be carefully set forth in their agreements so that it passes muster with the IRS.