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 simply take into account all the money from the business that is assigned for personal use, but for some businesses, it is not that simple. There are some different factors that determine exactly how much child support is to be paid and which revenue sources have to be calculated for support. We’ll explain this in detail for you to help you have a better idea of what you need to know about paying child support.
The Issue of Income
The problem that a lot of business owners face in figuring out their taxes and their child support is they don’t earn wages as 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 cannot be calculated like 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 that what is written down on someone’s taxes is going to be accurate, and those who own businesses are under even more scrutiny. That’s why there is a large 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 common 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 non-entrepreneur spouse will claim that the businesses-owning spouse is lying about income and should be paying more for child support. This 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 simply 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.
To avoid that, it is important to have all income well documented and verified through multiple sources. This 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 definitely have to be considered, as well as any income from any side businesses, no matter how small. It’s not just regular income that needs to be calculated, though. Lottery winnings, royalties, fringe benefits and in-kind benefits will all need to be included. Any rent or royalties the entrepreneur receives will have to be factored in as well.
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. Where your revenue comes from, how often you get paid, how much has to go to expenses, and all of these other factors have to be calculated.
You also need to 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, but 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. Make sure 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 truly 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 calculation 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 apply 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 revenue 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. That means that it is up to you as the entrepreneur to figure out how much you are making and where it all comes from and then document that in such a way that you can prove it in court. If the court is not satisfied with the documentation provided, they may require further proof from you or may simply ask that you pay more child support in case you are earning more than you presented.
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 for you, but it also helps to avoid auditing and other invasive and embarrassing 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.