The short answer, is that his child support would be calculated just like anyone else's as we discussed here. The problem is that with someone who is self-employed it becomes much harder to get to what their actual gross income is in order to plug it into the child support calculation.
Kentucky statute goes into great detail about income that is received from self-employment, rent, royalties, business ownership and other business endeavors. Specifically, gross income means gross receipts minus ordinary
and necessary expenses required for self-employment or business operation. However, most businesses will use some form of accelerated depreciation. Without getting into the various aspects of accelerated depreciation, let's just say it is an accounting method that allows a business to reduce its taxable income on paper. While it is a perfectly legitimate accounting tool, it is not allowable under Kentucky statute in calculating gross income for child support. In Kentucky, you have to apply straight-line depreciation, which usually means you have to back out some of the deductions a business owner has claimed on his taxes to get to his true gross income. There may be other tax credits and expenses that are inappropriate for determining gross income for child support. Therefore, a self-employed obligor's tax return should be carefully scrutinized.
Another problem that comes up with self-employed individuals is the practice of running expenses through the business that are for a personal benefit. This may include the use of a vehicle, cell phone, or even a residence. If a business perquisite (or "perk") reduces the normal living expenses a person would otherwise have were he not self-employed, an argument can be made that the value of that perk should be added back into the person's monthly income.
Self-employed individuals have numerous ways of hiding income. It is very important that their tax returns and other financial records be closely scrutinized by a skilled family law attorney. If you have more questions, contact the Alford Law Office.
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