Taking Care of Business: Child Support When a Parent is Self-Employed or Owns a Business

Our state’s child support guidelines calculate child support obligations based on gross incomes of parents, any work-related childcare, health insurance and several other factors. When a parent has a salary and W-2 statement, it is usually easier to determine that parent’s gross income. A parent who is self-employed and/or owns a business has at least some control over his or her gross income. For this article, assume a self-employed person is the same as a business owner with 100% ownership.

NC guidelines define gross income for a self-employed parent as “gross receipts [of the business] minus ordinary and necessary expenses required for self-employment or business operation.” That means the court would calculate a disputed income by first looking at the total income generated by the business, then subtracting the business expenses. Business expenses claimed on tax returns may be perfectly acceptable to the IRS, but the court may or may not deduct them when determining income for child support. That is the tricky part.

But there are a few things that are clearly not subtracted from gross receipts, such as the accelerated component of depreciation expenses. The court considers each of the claimed business expenses and decides which will or will not be subtracted from the gross receipts generated by the business. Fringe benefits paid for by the business “are counted as income if they are significant and reduce personal living expenses.” Examples of these types of expenses that are considered income to the parent who is self-employed include use of a company car or free housing.

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