 Income tax 2023-2024. Alimony received. Get ready and some coffee because we're looking to get the tax man off our back with income tax preparation 2022-2023. Most of this information can be found in the instructions for schedule one section of the form 1040 instructions tax year 2023 which you can find on the IRS website at irs.gov irs.gov looking at the income tax formula we're focused online one income remember in the first half of the income tax formula it's basically a funny income statement normally income statements having income minus expenses resulting in net income here we have income minus various deductions resulting in taxable income with the income line item for taxes we want it as low as possible therefore looking for things that we might be able to exclude from income and some income line items might be taxed at more favorable rates other than ordinary income examples possibly being qualified dividends long-term capital gains this is the first page of the form 1040 we're looking at line number eight which has an attached schedule which is the schedule one this is the schedule one additional income and adjustments to income we're looking at line number two related to alimony received okay so first thing we want to note with the alimony is there basically have been changes to it over time whenever there are changes to the tax law often the problem is that you have to make the change from one point going forward because you don't want to retroactively mess up things that happened in the past so clear what happens oftentimes is a law is made it's put in place people make plans based on that law and then when you want to change it possibly simplifying the code in the future it becomes difficult because if you first a word from our sponsor yeah actually we're sponsoring ourselves on this one because apparently the merchandisers they don't want to be seen with us but but that's okay whatever because our merchandise is is better than their stupid stuff anyways like our crunchy numbers is my cardio product line now i'm not saying that subscribing to this channel crunching numbers with us will make you thin fit and healthy or anything however it does seem like it worked for her just saying so yeah subscribe hit the bell thing and buy some merchandise so you can make the world a better place by sharing your accounting instruction exercise routine if you would like a commercial free experience consider subscribing to our website at accounting instruction dot com or accounting instruction dot think of it dot com put the change in retroactively it's going to mess up people's planning in the past we have a situation like that with regards to alimony so alimony payments have undergoing significant changes with respect to federal income tax laws especially after the tax cut and jobs act the tcga of 2017 the rules around the taxation of alimony payments depend on when the divorce or separation instruments such as divorce decree or separation agreement was executed or modifies here's a detailed discussion for tax year 2023 now the general idea you would think with regards to alimony what what is alimony it's going to be a payment from one spouse to another so if you have a divorce kind of situation people are married then they get divorced if in a normal situation you might have one of the people involved the spouse one spouse that spent more time taking care of the family possibly and the other one doing a lot of the work earning the wages the idea in that situation would be that both were supporting the family but the one that was earning the wages is going to be continuing to earn the wages you know in the future so if the so then the question is how are you going to divvy up in a divorce situation the earnings and one way is with alimony distributions now there's always been a big tax issue with regards to something being called alimony versus the child support because for taxes you have the question of is the person who's paying the money able to take a deduction which would be good for taxes and is the person that's receiving the money having or required to report the money in income now just like any other kind of transaction when we see something like an employee paying an employer for example not that those two situations are the same it's just that when you have a payee and a payer you can see the structure the iris is going to go after the one that's paying the money because they're the one that can possibly get a deduction the deduction for paying the money is a tax benefit and so they're going to want then the other person that's receiving the money to have to record it as income they're going to pressure the payer to rat out the person that received the money so that the iris makes sure they get their money from someone and an employer employee situation for example the employer wants to deduct the wages they pay to the employee and to do that the iris requires them to file a form w2 and actually do withholdings so that the iris knows who got the money so that the iris says you you're okay with that deduction as long as i can go after the recipient so are they going to do that same thing in a divorce situation one spouse is paying the other the question would generally be does the one paying get a deduction if they did you would expect the symmetry to be that the one receiving would have to report it as income and so that would be bad for the recipient and good for the one that is paying uh now for child support they basically came up with the idea that we're not going to do that we're just going to stay out of it but for alimony they said they were going to do that basically that was the old law which made i think the divorce settlements a bit more complex because now you have to take into account the complexities of deduction situations and so i think they might have made a good idea here to just remove the tax situation on both child support and alimony so you don't have these games that are played between allocating something between child support and alimony however if the agreement was made before the change was made even if it was a good change then then you don't want to retroactively go back and and do that and adjust those agreements because uh they have already taken into consideration the tax implications between alimony and child support so you make it from the current point going forward that's the general idea so alimony received if you've received alimony under such an agreement it is not considered taxable income and you should not include it in your income on your tax return for the year 2023 so if the divorce so this is for divorce separation agreements executed after december 31st 2018 after the new rules in place the new rule basically being the government's going to stay out of it right and not and so to get out of both child support and alimony so the person paying doesn't get the deduction and the person receiving doesn't have to include it in income that would be the easy thing to do you might say that's well that wouldn't be as as fair to the person that's paying possibly because they would have the tax benefit but you would think it would just make it easier to to to actually create the divorce agreement because now you don't have the added complexity so i would think the change and benefits would then be reflected in the change in numbers to the divorce agreement which should be easier to do you would think so alimony paid similarly if you pay alimony under an agreement executed after this date you cannot deduct these payments from your income so no deduction and no including in income even if it's alimony rather than the child support so this change represents a significant shift from previous tax law where alimony received was taxable and alimony paid could be deducted so alimony agreements executed before january 1st 2019 so you might be saying especially if you're the one paying alimony you're saying hey look i i had to execute the agreement and i get the deduction i'm i haven't i'm having to pay all this money but the reason i was okay with that is because at least i got a tax deduction for it might be some people's situation and if the agreement was made before the law change you know that makes sense right so they so because because that's what they was agreed on so before that date for agreements executed before january 1st 2019 the old rules apply unless their agreement was modified after this date and explicitly states that the tcja rules apply under the old rules alimony received if you are receiving alimony based on an agreement executed before january 1st 2019 you must include these payments in your taxable income for 2023 so this is something that of course we have to kind of understand because there should be symmetry between the two partners meaning if one partner gets to get the deduction they have an incentive to want to take the deduction if they take the deduction they're going to put the social security number of the person they paid the spouse or ex-spouse on the tax return just as the person who has an employee who wants the deduction for wages has to issue a w2 to the irs and that means that the person that receives the money is going to have to record it on their income or else they'll probably get some kind of letter because they will have received something similar to a w2 form right from the other spouse who claimed the deduction so clearly what would be best of course would would be to have things as clear as possible between both spouses so that they have something that makes sense on both tax returns obviously that communication can be difficult especially when the lawyers get involved and whatnot but but that would make it the easiest thing to do generally if it's possible so alimony paid if you are paying alimony under such an agreement you are generally allowed to deduct these payments from your income again look at the date this is prior to the modifications to agreements so if a divorce or separation agreement was modified after december 31st 2018 and the modification expressly states that the alimony payments are not deductible by the pay or included in the income of the recipient then the tc uh ga rules apply to the modified agreement so you came up with an agreement before and it was under the old rules now you modify it be careful be careful modifying it because this is a significant impact make sure that you're taking that into consideration with the modifications and what the the change would be that it would be a benefit you know it's a the new rules are beneficial to the recipient who doesn't have to include the in the money in income and detrimental to the one that is paying so therefore if you modify the agreement you would think you would take that into consideration and come up with an agreement uh based on the new the new landscape right which should be easier to do but child support versus alimony it's important to distinguish between alimony and child support payments as child support payments are not deductible by the payer and are not taxable to the recipient regardless of when the agreement was executed or modified this was always the issue before because they were sneaky it seems to me they can do like sneaky things and not expressly state as to whether something is alimony or child support and then we have to do kind of tests to see whether or not the payments that were agreed upon going from one spouse to the other qualifies child support in alimony which was a pain and could cause further litigation which again only feeds the the the lawyers uh eating you know the filet mignon and they're in their their hundred thousand dollar car or something you know so so we try to make it simple here reporting requirements for agreements executed before 2019 where alimony is deductible by the payer and taxable to the recipient the recipient must report alimony received as income the payer can deduct alimony paid if they itemize deductions on form 1040 schedule one so once again we're just looking at the line instructions now this is for agreements executed before 2019 and notice the form if they itemize deductions on form 1040 schedule one we're not talking about the schedule a so for post 2018 agreements and we'll talk about the deductible later as well we're kind of focused on the income side but you can see the symmetry between the two white red if one gets the deduction the other where you would think would have to record it as income so for post 2018 agreements since alimony is neither deductible nor taxable there are no specific reporting requirements related to alimony payments on federal income tax returns for either a party so lines to a and to b so now we're specifically looking at the lines alimony received line to a enter amounts received as alimony or separate maintenance pursuant to a divorce or separation agreement entered into on or before December 31st 2018 unless that agreement was changed after December 31st 2018 to expressly provide that alimony received isn't included in your income alimony received is not included in your income if you entered into a divorce or separation agreement after December 31st 2018 if you are including alimony in your income you must let the person who made the payments know of your social security number so so again it's just like when you issue a 1099 right they got to have the social security number because they're going to rat you out because they have to to get if they want the deduction if you don't to the IRS they're going to rat you out to the IRS with your social security number so if you don't if you don't you may have to pay a penalty for more details you can see publication 504 so 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 line to be so online to be enter the month and year of your original divorce or separation agreement that relates to the alimony payment if any reported online to a so now the iris wants the date because the date will help the iris to determine if it was properly reported as income given that cut off date if you have alimony payments that are more than one divorce or separation agreement online to be enter the month or year of the divorce or separation agreement for which you receive the most income attach a statement listing the month and year of the other agreement so if you've got a button if you're receiving you got like 10 10 people paying you alimony support then you but there's not enough room on the box in the form so you might have to have another added addendum form listing all the listing all those those individuals paying paying out the alimony or at least the dates the dates for all the all the all the uh uh divorce agreements okay