What Do You Mean I Cannot Deduct Business Expenses From My Income?
One of the fundamental questions that must be answered when looking at potential support obligations is – what is each parties’ income. One of the statutory factors for alimony addresses income. The very first line of the New Jersey Child Support Guidelines worksheet deals with income. To assist in this regard, Appendix IX-B of the Guidelines provides an explanation as to how income is determined for the purposes of looking at child support. While this provision does not specifically apply to alimony nevertheless it is routinely recognized as such by the courts.
Speaking generally, if you are a “W2” employee (i.e. are paid a salary or easily recognizable compensation), then determining your income usually tends to be pretty straight forward. However, what if you are self-employed, and/or derive income from a business, rent, royalties, or what have you? These cases require closer scrutiny.
As defined under the Guidelines, income is defined as “gross receipts minus ordinary and necessary expenses required for self-employment or business operation.” Unless there is an allegation of under-reporting (such as with a primarily cash business), “gross receipts” are typically straight forward. The difficulty at times is correctly identifying the “ordinary and necessary expenses.”
One of the issues that many litigants have is the distinction between expenses that you can deduct on your income tax return as opposed to expenses that can be deducted for the purposes of calculating your income. Put simply- they are not the same. As listed in the Guidelines Appendix, there is a specific list of expenses that, while tax deductible in the eyes of the IRS, will nevertheless not be permissible here and will be added back to your income. These specific items include the following: most depreciation, home office expenses, automobile expenses, some travel expenses, entertainment expenses, and excessive contributions to retirement plans.
What this means is that it is not enough to just rely upon your income tax return and the net income reflected on your Schedule C. You must be prepared, with back up documentation, to justify many of your expenses in the event that you are seeking to count same as ordinary and necessary.
All of the attorneys at Domers & Bonamassa are well versed and have years of experience addressing family law issues, no matter how complicated. Contact us today at (856) 596-2888 for a private consultation. We appear in the following counties: Burlington, Camden, Gloucester, Cumberland, Salem, Mercer, Ocean, Atlantic and Cape May. Our practice areas include: divorce, custody, parenting time, child support, alimony, domestic violence, college expenses, equitable distribution, name changes, step parent adoptions, paternity issues, child abuse and neglect, prenuptial agreements, mediation and arbitration.
This posting is provided by Domers & Bonamassa, P.C. for their clients, advisors and other interested persons. Since technical information is presented in a generalized fashion, the communication is not meant to replace the need for competent professional advice and the reader should understand that the information contained in or made available through this communication is not intended to be a substitute for the services of trained professionals. As such, the reader should evaluate and bear all risks associated with the use of any comments, including any reliance on accuracy, completeness, or usefulness of such content.
