Jo Firey wrote:
- quote -

There is another issue here. I haven't done the research to
go into detail here but there are rules for recapture of
alimony deductions in the first two yeara after divorce if
the amount decreases in subsequent years. If this
prepayment occurred in the first year it might not even be
considered alimony but a property settlement -- non-taxable
to the ex-spouse but also non-deductible to the payor. Even
if is does meet the requirements for alimony, the recapture
rules could cause a big tax bite in the following two or
three years.

Remember, the tax code defines alimony so that it doesn't
matter what the decree or settlement may call something.

Lanny K. Williams, C.P.A.
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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"Friendships and Networking" <bruce[at]trianglewebhosting.biz> wrote:

- quote -

And I thought the tax code was unfathomable!

What, exactly, are you asking? I'd like to give you an
answer, but frankly I can't understand what you want.
Perhaps if you tried to be a bit clearer we could help you.

Gene E. Utterback, EA

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- quote -

When alimony payments terminate or decrease substantially
within the first three years, the payer must recapture a
portion of the alimony previously deducted and the payee
gets a corresponding deduction for the same amount. The
alimony recapture rules are explained in IRS Publication 504
starting on page 16. Worksheet A on pages 15 and 16 can be
used to figure the amount of alimony recpature.

http://www.irs.gov/pub/irs-pdf/p504.pdf

Barney Byrd

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"Friendships and Networking" <bruce[at]trianglewebhosting.biz> wrote:

- quote -

Has to do with two things that work in opposition to each
other. Present value of a stream of payments vs cash now.
And a progressive tax system where higher income is taxed at
a higher rate. With lots of little quirks thrown in.

So what is better, 50,000 now vs 5000 a year over the next
10 years? What if your income is where the 5000 wouldn't be
taxed at all or only at 10%? And if the 50,000 would be
taxes at 28%%.

So you now get maybe 50000 x 72% or 36,000 now vs $4,000 a
year for 10 years. Is $36,000 now worth more or less than
$40,000 over ten years? (Or if the payments would be tax
free for someone with a low income you might be comparing
$42,500 after tax to $50,000 over ten years)

Add into the mix the rules for taxing social security,
credits that phase out at certain income levels and a lot
of unknowns.

If you are familiar with the term present value this will
make sense. If not look it up. It can be most interesting.
And much easier to calculate now with a computer than it
used to be with a calculator.

Jo

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Friendships and Networking wrote:

- quote -

Alimony doesn't include voluntary payments not required by
the divorce decree, so if the recipient doesn't agree
they're alimony, they might not be. If the recipient does
agree, you might get hit with the recapture rules.

Phoebe

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This really is intended for mere information purposes. The
examples I hope illustrate my confusion. I posted this on
Ask the Experts as well, stating the places I have
consulted.

I am looking for information on taxes. I know everything
essentially is taxable, unless excluded and some things are
specifically included. Ok, on the matter of two related
issues, capital gains, and say alimony. Suppose that, in
the case of alimony the partner decides to pay the full sum,
instead of over 10 years but at once or over a year. This
apparently becomes too much of a burden on the other
partner, tax wise. Why? If said partner receives say
$50,000 all at once, then does she/he not have the income
from which to pay that tax. Even if it was 50% of that sum,
it is still funding that puts her/him ahead. While it may
be desireable to have it spread out and then a burden on the
other and not on the spouse being paid, it doesn't appear
un-manageable based merely on the fact that said person has
to have the income to be taxed on said income. The same
with a capital gain. If a person is ahead $30k this year
and pays that tax this year on that income of $30k for
making a profit, she/he has the means to do so since he/she
made that income. He/she is still ahead and not burdened,
as it were. I am not espousing a side in this debate but
seeking an understanding.

Is this not the same as the lottery? If it were a burdend
to win $1million because of the tax burden, no one would
want to be the winner. They take it from the winnings but
still one is happy for what one has.

Thanks,
Bruce

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