How Is Child Support Calculated if I’m a Business Owner?
You might think that it would be easy to calculate child support as a business owner. You should consider all the money from the business assigned for personal use, but it is not that simple for some companies. Different factors calculate the child support amount, such as revenue sources. We’ll explain this in detail to help you have a better idea of what you need to know about paying child support.
The Issue of Income
A lot of business owners have issues figuring out their taxes and their child support because they don’t earn wages the same way a typical employee would. Their financial matters are more complicated and may require a tax professional to manage for the sake of following the law to the letter. Their taxes are different from your average w-2 employee, and that can make it tricky to try to determine child support without some help.
The IRS may not always accept the amount listed on someone’s taxes, and those who own businesses are under even more scrutiny. That’s why there is a massive tax on self-employed workers, and those who own businesses are sometimes required to pay tax support based on their entire company’s revenue.
That’s not a typical scenario, but it is one that any business owner is at risk of experiencing, especially if they are not very careful in documenting their income streams and declaring their taxes.
There are also instances where the entrepreneur’s spouse will claim that the businesses-owning spouse is lying about income and should be paying more for child support. It can prompt an investigation or at least place the business owner in a bad light and put them in the uncomfortable situation of having to defend their income. Sometimes, the business owner will be unable to prove their income or will not be able to effectively fight the accusations and will have to pay an increased sum for child support.
It is essential to have all income well documented and verified through multiple sources. It can clear up any wrongdoing and make it much easier to determine child support.
More Than Salary
A business owner’s salary is not usually their only source of income. Stock options also have to be considered, as well as any income from any side businesses, no matter how small. You must include lottery winnings, royalties, fringe benefits, and in-kind benefits. Remember also to factor any rent or royalties the entrepreneur receives.
Like we mentioned earlier, the more documentation you have of all these income sources, the better it will be. Documenting your income makes the process of figuring out taxes and child support so much easier. You’ll also be able to declare income and taxes with much more conviction and peace of mind, not wondering if you missed something.
Keep in mind that each kind of business will be a bit different. It would be best if you calculated where your revenue comes from, how often you get paid, how much has to go to expenses, etc.
Keep in mind that income can vary dramatically from one month or one year to the next. If you present a statement before the courts that shows you have steady income throughout the year. Still, your revenue increases and decreases drastically month by month, you will be doing yourself a disservice and possibly paying more for child support than you need to. Ensure that any statements you produce accurately reflect the larger picture and don’t show regularity where it does not exist.
London accountants, Accounts and Legal told us that “There isn’t as much risk to UK entrepreneurs, as their child support is based on what they present, which may be different from what they actually earn, in some cases. The risk of an audit still exists, but the presented statements are not as likely to be scrutinized as they would be for a US entrepreneur. If the entrepreneur does not believe the tax report used to determine child support is correct, then they can present documentation that shows that and request a new calculation. However, no new estimate will be made by the CMS unless the new documentation shows at least a 25% difference in the two supplied figures for the tax year.
Don’t Forget Your Extra Obligations.
When determining your income as an employer, you also want to calculate in your obligations. You should factor in all of the following that applies to you, as they can detract from your business revenue and need to be documented to show that you are not getting all of the income for yourself:
- Wages for employees
- Cost of inventory
- Operating costs
- Delivery costs
- Benefits and bonuses paid out
- Repair costs
- Renovation costs
- Taxes were taken out on the front end
There may be others as well, and if you have any concern that you might have forgotten something, you should consult with a tax expert.
It’s Your Responsibility
Most every court system in the world will require that the business owner prove their income for determining child support. It is up to you, as the entrepreneur, to figure out how much you are making and where it comes from. Then, document it in such a way that you can prove it in court. If the court is not satisfied with the documentation you provided, it may require further proof from you or increase your child support payments.
It’s best to present your tax records and income as honestly as possible. This will not only ensure the most accurate child support calculation but also helps to avoid auditing and other invasive procedures in the future.
This article was contributed by:
Ana-Maria Sanders – Content Manager
Ana-Maria Sanders a content writer and marketing manager at LoanStart.com. In my current role, she is responsible for managing the finance and operations of securities. She loves writing blogs on various topics to give insights for managing finances and loans.
Website: loanstart.com