How Does A Business Owner Calculate Their Income For Child Support Reasons?
In this video we Johnson County divorce lawyer Patrick Copley talks a little about child support calculations for business owners. Gross domestic income is the income that is used when determining child support on the Child Support Worksheet in the state of Kansas and the Form 14 in the state of Missouri. Specifically, in regards to small business owners, or business owners in general, and how they are supposed to account for their income. If you got a divorce or a paternity action and both parties are standard W-2 employees who get their pay stub every two weeks, or any standard amount of time and you see your gross income at the top, you take out FICA, you take out your state and federal taxes, and then you got you net income at the bottom. Your gross domestic income is the top line which is the amount you are paid before anything is taken out.
It can get a little complicated when you are dealing with a business owner, because they are not W-2 employees for the most part, and so how is it that we determine whether their income is for child support purposes. In the state of Kansas, and in the state of Missouri, it is not too complicated. If we want to determine what your income was for a particular month, what you would do is look at the business deposits were for the month, which is the top line, then when you reduce that by your business expenses. This is how Kansas child support guidelines define business expenses, “reasonable business expenses are those actual expenditures reasonably necessary for the production of income. Reasonable business expenses shall include the additional self-employment tax paid over and above the FICA rate.” Reasonable business expenses are those actual expenditures reasonably necessary for the production of income, this does not include business credit cards or business lunches. I am not talking about being able to reduce that full amount with the IRS because for child support purposes, more than likely, you’re either A) not going to be able to reduce it at all, or B) only a certain percentage, rule of thumb 50%. That is just one example, if you go out to a lunch yourself or a business partner. Now if it is with a client or a potential client, whatever you paid for, for them, probably 100%, but for yourself, it is either going to be 0% or 50% deduction. If you have a car and the car is a business expense, owned by your business and you put gas in it, and you expense that gas, more times than not that car is also going to be used for personal purposes.
With that being the case, you will not be able to, for child support income purposes, reduce your income by each tank of gas 100%. If you are using that car for anything other than strict business purposes, more times than not, it is only going to be about a 50% reduction. So, what do you get to reduce your income by? If you have rent for an office space, that would be a 100% reduction if it is located outside of your home. If you have to buy inventory that you are selling to the public that is something you would be able to reduce your income by 100%. But many people believe that if the IRS allows them to take something as a full deduction, then they get to reduce their income for child support purposes by the same amount which is not the case. Some also believe that is business credit card is a business expense that they can reduce their income by which is not true.
Where you can get into problems with this is if the other party believes they are being underpaid. If they have to go through and tediously reconstruct your income and have you on notice prior to doing that, and they believe you are under reporting your income, they can ask for attorney’s fees from the Court and in most cases, those attorney’s fees will be granted because the party who is receiving the child support is basically is having to hire an attorney to do the work that the payee or spouse is supposed to be doing.
Get your questions answered - call me for your free, 20-minute phone consultation (913) 451-9500.