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How Do I Calculate Income for Business Owner?

When dealing with business owners in a divorce, it is important to understand income, cash flow, salary, taxes and business.  Having practice domestic law for over 20 years, and having a degree in business economics, I have a unique perspective and experience in handling these issues in Northern Kentucky and Cincinnati.   Following are a few examples: 1. There are a number of legitimate tax deductions which should be included when calculating total income for spousal or child support purposes.  For example, a business owner can generally deduct all or a portion of the expense for his business vehicle.  This will allow the net income to be less than the gross income.  That vehicle expense, however, is included into the calculation for total gross income when calculating child support. 2. Business amortization.  This is not a real expense.  There is no money/cash paid in order to amortize an asset.  If a business depreciates a building or computer over time, it is a tax savings and devalues the asset, however the business does not have an actual expense to pay.  As such, even though it is deductible from the gross income, it is included when calculating an owner's income for all divorce purposes. 3. Gross sales v. net income.  These can be very confusing and often a spouse of a business owner will become enthralled with the gross sales or gross income.  For a one person company, this may be very relevant, but for a larger company, gross sales or gross income may have no relationship to the owner's actual income.  For example, if a small computer company has 4 employees and has gross sales of $1MM.  This company might have $500,000 in the cost of goods sold, translating to gross income of only $500,000.  If each of the employees makes $100,000, then there is only $100,000 left over for the owner, before expenses.  An owner of this fictional company may make significantly less than his employees after normal operating expenses are deducted. As you can see from these examples, calculating the income for a business owner may be very complicated.  The bigger the company, the more tax deductions, and the more business write-offs all affect how the income is calculated.  Additionally, income may be calculated at one level for tax purposes, a different amount for purposes of calculating child support and another amount for purposes of calculating spousal support.  It is important to understand the difference and how to best represent the client. For a consultation in Northern Kentucky, call Bouldin Law Firm at 859-581-6453 (581-MIKE) or email at [email protected].  

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