Questions for the Tax Lady: August 2nd, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: I recently got divorced from my spouse and am required to make alimony payments. Can I deduct these funds on my federal tax return?

Yes, as long as you meet the IRS’ requirements you should be able to deduct alimony payments paid to a former spouse. To learn more about the alimony payment deduction, check out this article from the Roni Deutch Tax Center – Tax Help Blog.

Question #2: I had to pay late penalties to the IRS, can I deduct these expenses?

No. According to IRS.gov, interest and penalties paid to the IRS on federal taxes are not deductible.

Questions for the Tax Lady: October 26th, 2009

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: Are alimony payments taxable income?

Answer: Yes, alimony payments are subject to an income tax in the year received. You will need to report this income on IRS Form 1040 when you file your return this April. For more information on alimony, child support, court awards, and damages check out this page on IRS.gov.

Question #2: If my husband and I foreclose on our home, and the bank forgives us of the negative equity, will we have to claim that as taxable income?

No, fortunately you will not. Although canceled credit card debt is considered taxable income, this is not the case with mortgage related debt. Your lender should be familiar with this exclusion, but do not freak out if you do get a 1099 Form from them in January. Just file IRS Form 982 with your tax return, and you will not need to claim the canceled mortgage dept as income.