 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. 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 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 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 that's okay, whatever, because our merchandise 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 works 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 accountinginstruction.com or accountinginstruction.thinkific.com. Put the change in retroactively, it's gonna 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 TCJA 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 is alimony? It's gonna 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 gonna be continuing to earn the wages in the future. So, then the question is how are you gonna 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 employee error, 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 IRS is gonna 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 gonna want then the other person that's receiving the money to have to record it as income. They're gonna pressure the payer to rat out the person that received the money so that the IRS makes sure they get their money from someone. And an employee situation, for example, the employer wants to deduct the wages they pay to the employee, and to do that, the IRS requires them to file a form W-2 and actually do withholdings so that the IRS knows who got the money, so that the IRS says, you're okay with that deduction as long as I can go after the recipient. So, are they gonna do that same thing in a divorced 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. Now, for child support, they basically came up with the idea that we're not going to do that. We're just gonna stay out of it. But for alimony, they said they were gonna 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 in to account the complexities of deduction situations. And so, I think they might've 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 you don't wanna retroactively go back and do that and adjust those agreements because they have already taken into consideration the tax implications between alimony and child support.