For 2010, how much can Rick deduct as alimony in total?
The Hamiltons were granted a decree of divorce in 2009. In accordance with the decree, Rick Hamilton is to pay his ex-wife $24,000 a year until their child, Evelyn, now 10, turns 18, and then the payments will decrease to $14,000 per year.
D.) None of the above.
Alimony refers to a payment that a court of law determines which has to be made to the former spouse after a divorce or formal separation. The amount that is paid out as alimony is deductible from the income of the person making the payment. A few things that have to be kept in mind here is that the amount that is deducted from the income of the person paying the alimony, has to be added to the income of the person who receives the amount. Also, child support cannot be included under alimony.
From the information provided here, the amount that Rick pays to his ex-wife remains $24,000 till their child Evelyn turns 18, it then drops to $14,000. The conclusion that can be drawn from this is that $10,000 is child support and $14,000 is the actual alimony.
Therefore Risk can deduct $14,000 from his income as alimony.
The correct answer is option B.