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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28084
Experience:  Taxes, Immigration, Labor Relations
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I have a client who is legally separated.Spouse A is income

Customer Question

I have a client who is legally separated.Spouse A is income earning, will pay Spouse B, stay at home parent, a spousal maintenance that is already agreed upon. However, Spouse A receives a substantial annual bonus. I am looking into most advantageous way to split the bonus, after tax. 50/50 of net is expected, however Spouse A is paying all taxes, therefore may look better on apper possibly Spouse A keeps 65, spouse B gets 35%? What is best way to split annual bonus?
Submitted: 1 year ago.
Category: Tax
Customer: replied 1 year ago.
These clients both reside in Buffalo, NY. The annual income of Spouse A is approx. $117, bonus will range between $190k paid in 2014, increasing approx. $40k per year each year for 10 years. concerned about recapture tax scenario for Spouse A.
Expert:  Lev replied 1 year ago.
Hi and welcome to our site!Payments are taxable for the person who received that payment.Income may NOT be transferred to another spouse.However - some payments between spouses may be deductible. Specifically - taxable to the payee and deductible by the payor" is ONLY allowed for the alimony,Any other transfer as "property settlement" would not trigger such tax consequences...
Expert:  Lev replied 1 year ago.
However - - to be treated as alimony - please see IRS pub 504 - www.irs.gov/pub/irs-pdf/p504.pdfAlimony Requirements. A payment to or spouse under a divorce or separation instrument is alimony if the spouses do not file a joint return with each other and all the following requirements are met.-- The payment is in cash.-- The instrument does not designate the payment as not alimony.-- The spouses are not members of the same household at the time the payments are made. This requirement applies only if the spouses are legally separated under a decree of divorce or separate maintenance.-- There is no liability to make any payment (in cash or property) after the death of the recipient spouse.-- The payment is not treated as child support.
Expert:  ShawnA replied 1 year ago.
Hello. My specialty is focusing on YOUR Financial needs. Financial Planner/Business Owner for 20 years. Retired CPA
Different expert here. In a recent divorce the deal was 30% of base salary (200,000K a year=60,000 K to wife).
Annual, bonus was normally between 200-300. She took 30% up to 200,000 (60,000 max potential for her).
When you say spouse A is "paying all the tax" he is obviously getting a write off for the alimony (monthly and bonus) and she is paying taxes on what she receives. Or is it a bizarre arrangement where he pays her a "net amount".
Expert:  Lev replied 1 year ago.
Please be aware that section 71(f) specifically prohibits excessive front-loading of alimony payments...See here https://www.law.cornell.edu/uscode/text/26/71(f) Recomputation where excess front-loading of alimony payments (1) In general If there are excess alimony payments— (A) the payor spouse shall include the amount of such excess payments in gross income for the payor spouse’s taxable year beginning in the 3rd post-separation year, and (B) the payee spouse shall be allowed a deduction in computing adjusted gross income for the amount of such excess payments for the payee’s taxable year beginning in the 3rd post-separation year. (2) Excess alimony payments For purposes of this subsection, the term “excess alimony payments” mean the sum of— (A) the excess payments for the 1st post-separation year, and (B) the excess payments for the 2nd post-separation year. (3) Excess payments for 1st post-separation year For purposes of this subsection, the amount of the excess payments for the 1st post-separation year is the excess (if any) of— (A) the amount of the alimony or separate maintenance payments paid by the payor spouse during the 1st post-separation year, over (B) the sum of— (i) the average of— (I) the alimony or separate maintenance payments paid by the payor spouse during the 2nd post-separation year, reduced by the excess payments for the 2nd post-separation year, and (II) the alimony or separate maintenance payments paid by the payor spouse during the 3rd post-separation year, plus (ii) $15,000. ...So - if you are thinking to make a payment as a future alimony and deduct that payment in the current year - here is a risk - in case the IRS disagrees with your interpretation - the type of payment might be recharacterized (or “recapture”) part of the alimony payments as nondeductible property transfers.Otherwise transactions between spouses do not trigger any tax liability.Let me know if you need any help.