What kind of documentation do you need exactly? My divorce was in 2016 and I've been deducting alimony, but I'm always paranoid I'm doing it wrong.

You should keep copies of canceled checks, bank statements, or other proof of payment that clearly shows the amounts and dates. I also keep a yearly summary log that matches my payment records. Make sure you have your divorce decree handy too, since it specifies the alimony amounts. You'll need your ex's Social Security Number for Form 1040 (the recipient is required to provide it). If you're using tax software, it will specifically ask for this information in the alimony section. Just don't confuse any child support payments with alimony - only the alimony portion is deductible for pre-2019 divorces.

Unfortunately, you've been deducting incorrectly. The law is very specific about the cutoff - the divorce or separation agreement must have been executed before January 1, 2019. Since yours was finalized in February 2019, you fall under the new rules. I would strongly recommend consulting with a tax professional about amending your previous returns. You may owe back taxes plus potential penalties for the incorrect deductions.

Our temporary orders don't actually specify who can claim Emma for taxes. The final custody agreement is still being worked out. That's really helpful info about the benefits Jess would get - or not get - with zero income. I hadn't thought about that angle. Would the grandparents benefit more from claiming Emma than either of us since they actually have income?

Yes, with zero earned income, Jess wouldn't benefit much from many of the tax credits related to having a dependent child. Some credits like the Child Tax Credit are partially refundable, but without income, she wouldn't get the full benefit. The grandparents would likely benefit more than Jess would since they presumably have income. They could potentially claim dependency exemptions and other benefits. However, that doesn't mean they have the legal right to claim Emma - they would only have that right if neither parent claims her. Since you're actively involved and supporting Emma, you should definitely try to address this in your final custody agreement. Many agreements include specific language about alternating years for tax purposes, regardless of where the child primarily lives.

This is spot on advice. And don't wait until tax time to bring this up! Send an email or text now stating your intention to claim your daughter this year. That way they can't claim they didn't know.

Were there any differences between your return and your brother's? Like did you claim any credits or deductions that he didn't? Sometimes certain things trigger additional review.

1 That's a really good point about the withholding! I'll definitely ask her if she received the full $25,500 or if taxes were already taken out. The tax paperwork they gave her was kind of confusing - it had both USD and CAD amounts on it, but I'm not sure if it showed whether any Canadian taxes were withheld. Do you know if the US-Canada tax treaty affects the withholding rate at all? Someone mentioned treaty rates in another comment.

17 Yes, the US-Canada tax treaty can definitely affect the withholding rate! The standard non-resident withholding for prizes in Canada is 25%, but the treaty might reduce that depending on the specific type of income. For certain prizes and winnings, it could be reduced to 15%. The paperwork with both USD and CAD is typical. They would have used the exchange rate on the day of the win to calculate the Canadian tax withholding. If you look carefully, there should be a line item showing "non-resident withholding tax" or something similar. It's crucial to know this amount for filling out Form 1116 correctly to claim the foreign tax credit.

8 That's actually not correct. US citizens and residents are taxed on their worldwide income regardless of where it's earned. Both your $500 poker winnings from Mexico and the OP's cousin's $25,500 game show winnings from Canada are reportable on US tax returns. The US is one of the few countries that taxes based on citizenship rather than just residency or the source of income. You were technically required to report that $500 poker winning as "Other Income" on your tax return. For small amounts like that, it's unlikely to trigger any issues, but for larger amounts like $25,500, failing to report could potentially lead to penalties if discovered.

5 Oh crap really? Nobody ever told me that before. I thought income earned outside the US stayed outside the US tax system. So I should have reported my Mexico poker winnings? Will I get in trouble for this?

Thanks for the suggestion, but unfortunately that's not feasible in our case. There are specific reasons (including some health insurance and retirement benefits) why this person needs to remain employed by the S-Corp rather than directly by the partnership. We looked into changing the employment structure earlier and determined it would create more problems than it would solve.

I understand the constraints with benefits. In that case, I think your best option is to follow the special allocation approach mentioned earlier. You'll need to amend your partnership agreement to specifically state that the $25k is first allocated to S1 as a special allocation to compensate for the employment expense, with the remaining profits split 50/50. This maintains economic substance while ensuring your allocations match the reality of your situation. Just make sure the special allocation language complies with the "substantial economic effect" requirements in Treas. Reg. 1.704-1(b)(2).

Accountable plans are typically for employee expense reimbursements, not for reimbursing one partner for paying another partner's compensation. I don't think it applies here since the partnership isn't reimbursing an employee for business expenses - it's a structural compensation arrangement between partners.