Last Minute Tax Tip: Pay Up Your Alimony Now

Let’s face it, divorce sucks and paying alimony is even worse. But if you have an arrangement where you are supposed to be paying alimony (and I mean alimony, not child support) it’s to your advantage to pay up for the year before December 31. Here’s why:

Money that is paid out as alimony is a tax deduction for you. (And, if it’s any consolation, it’s taxable to your ex.) Child support, on the other hand, gives you no tax deduction and your ex pays no income tax on it.

Alimony is considered to be an “above the line” deduction. That means it lowers your adjusted gross income. Now that sounds like a lot of accounting jibberish, but on your tax return, it’s valuable. It can make the difference between whether or not you qualify for other deductions or tax credits. Made simple: above the line deductions are good.

Now here is the really important part: if you pay both alimony and child support, and you’ve missed some payments, then whatever payments you have made get counted as being child support first, and alimony second. Okay, in plain English: Let’s say you’re supposed to pay $100 a month for alimony and $200 a month for child support. $300 a month total. (Okay, that must sound like a fantasy but I like easy numbers.) Anyway, suppose you were good all the way up through September at paying $300 a month but then something happened and you didn’t make any payments from October through December.

For those first nine months you paid a total of $2,700. In your mind you paid $900 in alimony and $1800 in child support, right? Except that’s not how the IRS sees it. To them you paid $2,400 in child support and $300 in alimony, because for tax purposes you pay the child support first. So with the money that you did pay, you don’t get your full deduction. And let’s be real here, we’re probably talking about bigger numbers in real life. This tax deduction can really make a difference.

Bottom line: if you want to claim your full alimony deduction, all of your alimony and child support for the year must be paid in full by December 31st.