In the United States, child support calculations are very much dependent on the parents’ income. While calculating the income of W2 employees is basically a straightforward process, doing so with self-employed parents can be a lot more complicated.
A number of self-employed parents attempt to minimize their income and hide income in their businesses in order to minimize their child support payments. Unfortunately, this also means providing less support for his or her child.
In order to analyze the income of a self-employed parent, one must take a look at his or her business tax return. Here are some of the most common places to find hidden income:
1. Office expenses - When a person lists down office expenses for the business, take a closer look to see if these are actually personal expenses disguised as official expenses. Comb through bank statements and look for high-dollar items. Some individuals take a personal vacation and write off the hotel accommodations and travel costs as a business expense. This could result in thousands of dollars missing from a child support calculation each year.
2. Home office expenses - Home office expenses are similar to office expenses in such a way that it is a very common area to hide income. Computer equipment and even furniture intended for the home can easily be determined as business expenses for the home office. One must possess an understanding of the purpose of the business in order to properly analyze the validity of this form of expense.
3. Wages - Take a closer look at the payee spouse’s standard of living. Do they have laborers who work on their personal property such as a maid or gardener? It might be necessary to see if these workers are being paid for through the employer’s personal funds or through the funds of the business.
4. Advertising - Are there expensive pieces of personal property such as boats and cars under the name of the business? These expenses may be paid through the business. Similarly, fake advertising may allow a self-employed parent to pass large amounts of cash to himself without having to pay for taxes and by keeping it off the record. A self-employed parent may write off a check to a national advertising paper, but really be writing the check to himself.
An experienced family lawyer will be able to spot these attempts at hiding income and help you get fair support for your child.