FAMILY LAW ARTICLES
A business owner with employees can be a limited liability company, corporation, non-profit, or partnership. However, that doesn’t mean all tax deductions are deductible from compensation for child and spousal support. A forensic accountant must determine the actual income a business owner receives to determine the spousal support calculated for business owners.
Tax Deductible Items
Certain items that are tax-deductible are not necessarily deductible for support purposes. Items that cannot be added back in for support include necessary business expenses, such as employee wages.
Perks are items that are tax-deductible but will count as income for the business owner. These perks can be a vehicle used for the business or things that are not necessary for the company’s operation.
Determining Total Income
When an attorney or a forensic accountant determines total income, they add in the business profit shown on the K1 or Schedule C of your federal tax returns. This includes anything that is considered a perk and depreciation. Depreciation gives you a tax break on the decrease in the value of your business assets. Because you are not losing actual cash, depreciation is added back in for support purposes.
Some items that look as though they are business essentials are often perks. For example, an officer that takes a paycheck but does not work at the company. That person is a tax deduction, and a forensic accountant will add that money back into the company as profit for support purposes.
Gift cards are a considerable expense. Business owners often use gift cards to thank customers, but just as often, they use the gift cards for perks. A forensic accountant can trace these “hidden” perks to determine whether they should count as income.
When Both Spouses Worked in the Business
One other issue is if both spouses worked in the business, but one leaves because of the divorce. An expert must determine whether the spouse’s contribution was essential to the operation of the company. If not, that is additional money for support purposes. If so, the spouse keeping the business must hire someone to take the spouse’s place. That is an expense that deducts money from that available for support reasons.
Contact Hartley Lamas et al.
Determining funds available for support is often difficult. It requires extensive discovery in the form of accounting reports. These documents can help lawyers and forensic accountants determine which taxable items are essential for the company. Also, which perks should be added to the business owner’s income.
If you own a business and are ready to file for divorce, or if your spouse served you divorce papers and you – or both of you – own a business, contact Hartley Lamas et al. for a consultation.