First of all, child support is never deductible or taxable. It is generally assigned by the courts under a formula that is not open to negotiation.
To obtain a deduction for the alimony you pay (it will be taxed to your ex), you must follow the “five Ds” for deductibility:
It’s possible to increase your tax deduction by rolling the child support and alimony into one payment called “family support.” Calling child support “family support” makes it fully taxable to the recipient and deductible to the payer, just like alimony. Generally, that saves income taxes, since it moves money from the higher tax bracket of the payer to the lower tax bracket of the recipient. But expect to pay more in family support than you would in differentiated support, since your ex will get additional funds to cover her increased taxes and also to share in the overall tax savings your family will enjoy from the undifferentiated family support.
A word of caution: if you opt for family support, but provide in your agreement that it will decrease when the children reach majority age, the IRS will consider the amount of the called-for reduction as disguised child support, and you won’t be able to deduct that portion of the payment. Family support orders must be very carefully worded to prevent adverse results.
Ginita Wall is a San Diego CPA (Certified Public Accountant), CDS, and CFPª practitioner specializing in divorce. She is author of The ABCs of Divorce for Women and It’s More Than Money — It’s Your Life: The New Money Club for Women. She’s the co-founder of the Women’s Institute for Financial Education (www.WIFE.org). She can be reached at (858) 792-0524. View her website.