When you file your 2005 tax return, avoid these errors:
- Alimony deductions. Money you pay is deductible but there must be a court order or a written agreement. On your tax return, you’re required to enter the Social Security number of your former spouse, who’ll owe tax on the alimony income.
Good news: genuine alimony payments are deductible even if you don’t itemize deductions.
Bad news: you can’t deduct child support payments. Thus, your divorce or separation documents should clearly indicate the amounts of alimony and any child support.
- Worthless securities. If you invested in a company that lost all of its value last year, you can take a capital loss. However, you must show that the company became completely worthless, which may not be possible.
In that case, sell the securities to an unrelated party for $1, which will enable you to take a capital loss.