 Income tax 2022-2023, alimony received. Let's do some wealth preservation with some tax preparation. Most of this information comes from the Form 1040 Instructions Tax Year 2022, Instructions for Schedule 1, Additional Income and Adjustments to Income, Additional Income, which you can find at the IRS website, irs.gov, irs.gov. Looking at our income tax formula, we are once again focused online, one that being income. Remembering that the first half of the income tax equation is in essence a strange income statement where we have income minus the equivalent of expenses, those being the deduction, gets us to the equivalent of net income, in this case, taxable income. Our objective being the opposite of the normal objective, we want the bottom line taxable income to be as low as possible. So when focused on the income line, then the question is, is this thing income? And if it is, do I have to include it as taxable income or is it exempt? We're applying that thought process to alimony now. So alimony is alimony. One of those kind of weird situations, there's been a change to the tax law fairly recently. So you wanna make sure that you keep that in mind because there's kind of like a cutoff date type of situation. When we're thinking about alimony, we're thinking about a situation where there is a, support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website, broken out by category, further broken out by course, each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files, and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. Operation married couple, typically separating a divorce taking place and then possibly one spouse paying the other spouse. Now typically in that kind of scenario, we have two categories of the type of payments that might go from one ex spouse to another ex spouse, one being child support, the other being alimony. Now it used to be that those kind of characterizations were quite important from a tax perspective, even though it's still just one money going from one spouse to the other because there could be tax implications. And like with any other kind of transaction, the person receiving the money then of course would have the question, do I have to include it in income or not? And obviously they would like to be able to say, no, I don't want to have to include it in income. I want to have the money, but not have to include it in income. And on the payer side of things, you have a situation where they're saying, I do want to include it in income because I want to be able to deduct it on the payer side of things. So that's the general, the general theory and it used to be that if it was categorized as alimony, then it's something that you don't have, I mean that you would have to include in income if you received it and you would get a deduction for it, but if it was child support, then you would not have to record it as income, even though you received child support and the payer would not get the benefit of recording it as a deduction. Now you might look at this and say, well, the tax code is favoring one side of the transaction or another side of the transaction, but it's also kind of just the situation that when the tax code gets more complicated, then when you fill out the divorce paperwork and whatnot and try to come to an agreement that's gonna be something that both sides can agree to, then obviously the tax code, whatever the tax code is in a perfect world, if you had all the information, you would just work that into your agreement. So to me, it seems like you would kind of like to make it kind of easy on the tax code and that the tax code is not gonna make a more complex situation. You wanna make it, so the tax code's not making things more complex than it could, so that when you make the agreement, both sides have the information necessary to come to an agreement that both sides can understand and put into practice. And I think that's kind of what they did with the new law where they basically said, we're not gonna have this differential tax treatment, we're gonna kind of try to take the taxes out of it. However, if you made the contract before that new change took place, then you can't really do that retroactively because the old laws are what the contract was based on. So that's kind of the scenario that we're in. All right, so this would be on the first page of the tax return, going into line eight, other income from schedule one, and then here is the schedule one. If you had to include the alimony, then it would be here, the alimony that has been received. Notice down below, they got the date of the original divorce or separation agreement. That's gonna be necessary because you've got this cutoff date now and you would expect that if the agreement was after the cutoff date, that you wouldn't have anything recorded as income. If it was prior to the cutoff date and your agreement was made based on the prior tax laws, then you would think that you might have the income. That's the general rule. Okay, so lines two A and two B, alimony received. So now you've got a taxpayer receiving alimony, enter amounts received as alimony or separate maintenance pursuant percent to a divorce or separation agreement entered into on or before. Here's the cutoff date, December 31st, 2018. Unless the agreement was changed after December 31st, 2018 to expressly provide that alimony received isn't included in your income. So in other words, before December 31st, 2018, if you were trying to make your agreement from a separation, a divorce in that type of situation, you've got this weird thing where if the payment is being categorized as child support, then the person paying it might not be able to get the deduction and the person receiving it might not have to record it in income. But if it's alimony, then if it's categorized as alimony, then the person that is paying it might get a deduction. And when they get the deduction, when they claim the deduction, they would generally put the social security number of the person receiving the money, the other spouse, the ex-spouse in a similar way as you would have with the 1099, the IRS having the same kind of influence they have in business transactions, pressuring the one that gets the tax benefit. All the information, including tax benefits, is in here. The payer to tell them who they paid so they can go after the recipient for the taxes in that transaction and the one that got the money would have to be included in income. Now you can see that kind of makes the agreement between the two more complicated because you would think that you would just figure out then what the tax consequences would be and work that into your separation agreement to determine what the payments would be and so on and so forth that would be fair. After 2018, they basically kind of removed that so whether it's categorized as child support or alimony then the person that is paying doesn't get the deduction and the person that's receiving isn't gonna have to include an income. So you can kind of think, well, maybe that's harsh on the person that's paying because they don't get a deduction anymore. But again, to me, that would just mean if you made the contract under the new agreement you would just adjust the payments to take into consideration that now the tax law doesn't allow you a deduction. It would be a simplified agreement and you would expect if the agreement would look different than it would if the tax code was structured in the other way. But obviously if you made the decision before 2018, December 31st, 2018, then you had to structure it given the tax law at that point in time unless you changed it after that. Okay, so alimony received is not included in your income if you entered into a divorce or separation agreement and after December 31st, 2018, if you are including alimony in your income you must let the person who made the payments know your social security number. If you don't, you may have to pay a penalty for more detail C publication 504. So if you're including it in income, then you would expect the person that's paying it would have gotten a deduction. And it's kind of like if you were doing contracting work for a company, you have to give them your number, your social security or EIN number so that they on their end can take the deduction. So if you're, so right, that's the kind of the thought process. Now there's also this definition between what is alimony versus child support. Not as big a problem of a definition given the fact that the tax, there's not as big tax difference between the allocation between the two. But the child support is of course the money that is being paid for the support of the child. And oftentimes the separation or divorce agreement will be specific in being able to tell you what child support and alimony is differentiating the two, but sometimes it's gonna be vague. And then, and if that were the case you would have to get into the nitty gritty and say, well, okay, does the payment stop happening once the child reaches an age of maturity, like 18 or something? If it does, you would expect that to be the child support portion. And if not, then it would be, you expect maybe the alimony kind of portion. You'd have to kind of figure out what's gonna be child support and what's gonna be alimony. Obviously in a divorce type of situation, you want the thing in a perfect world to be as clear and transparent to both parties so that it will cause the least amount of problems as people move forward with their lives going forward. But as we, that's not always the case, especially when lawyers are involved in a situation, right? And they get paid for bickering. The bickering is their bread and butter. So in any case, if you are including alimony payments from more than one divorce or separation agreement in your income, enter the total of all alimony received online to A. So line two B, online to B enter the month and year of your original divorce or separation agreement that relates to the alimony payment. Okay, payment. If any reported online to A. So now you're giving the date because that will help the IRS determine whether or not you're properly recording it due to the different laws that have been put in place on that cutoff date. So if you have alimony payments from more than one divorce or separation agreement online to B, enter the month and year of the divorce or separation agreement from which you received the most income, attach a statement listing the month and year of the other agreements. So you might have multiple alimonies and you just, you got it. But in any case, that's the general idea. We'll take a look at some software examples in a future presentation.