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Is Maintenance Taxable?

In Kentucky, the maintenance is the legal term used to indicate alimony or spousal support.  As an attorney who practices in Ohio and Kentucky, I often use the terms interchangeably, however the proper term in Kentucky is maintenance.  In generally, maintenance IS taxable to the party receiving and is tax deductible to the payor.  This is sometime confusing when temporary maintenance is put in place while the parties are still married. For example, if the parties separate on October 1st and they are not divorced by the end of the calendar year, they will be required to either file taxes for that given year as married, filing separately or jointly.  If they file jointly, any payments of maintenance will not matter for tax purposes.  If they file separately, the maintenance may be included.  Often times for very short periods the parties may agree to some "family support."  Family support is often considered or the term is used to describe a blend of child support and spousal support.  Parties should consult with their attorneys, and attempt to clarify in writing, to avoid IRS disqualification of a deduction.  By contrast, child support is never taxable or tax deductible. When determining amount of spousal support, the tax implications should be taken into consideration.  Many times the parties can actually save the total money paid to the government by careful planning of maintenance payments.  For example, if a husband is in the 34% tax bracket and the Wife is without income, the first $15,000 of annual payments are virtually tax free. The husband will deduct the total payments, thereby reducing his taxable income by $15,000 and saving 34%, or $5,100 from his tax obligation.  The Wife will be in a zero tax bracket, thereby not having taxable income.  Greater amounts to Wife will be taxed at her lower tax rate, also increasing the "family" tax obligation. It is important to know your terms and tax implications when resolving temporary and permanent child and spousal support terms.  Your attorney should make you aware of these tax implications, but a CPA or other tax expert may be essential to consult prior to final resolution.  For a consultation regarding divorce or dissolution in Northern Kentucky, call Michael at Bouldin Law Firm at 859-581-6453 or email at [email protected].  Call 581-MIKE.

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