I received a phone call from an attorney (not related to my firm) this morning requesting assistance on determining income for child support purposes from a self employed individual. His client’s ex-husband was a self employed truck driver grossing $160,000.00 per year. However, after deductions, his income was significantly less.
One deduction appeared questionable, the ex-husband took a $25,000.00 deprecation deduction on his truck. This deduction reduced his gross income in a single tax year and if ignored would result in a reduction in child support.
The 2013 Michigan child support formula manual 2.01(E) recognizes that there is difficulty in determining income for self employed individuals, business owners and others for several reasons.
First, self employed individuals have unique types of income and expenses.
Second, tax rules are different for the self employed than a typical W-2 employee and
Third, the business owner can exercise control over their business and compensation to reduce the amount of income available for support.
The Michigan Child Support Formula Manual provides some guidance to the attorneys question in 2.01(e)(ii). It is appropriate to use straight line deprecation on vehicles but not accelerated depreciation.
Straight line depreciation is a tax deduction which depreciates the vehicle equally over the life of the vehicle. So, if a vehicle is work $25,000.00 and has a useful life of say 5 years, the depreciation would be $5000.00 per year. Accelerated depreciation depreciates the vehicle in the first few years. For example, the taxpayer may depreciate the vehicle $25,000.00 in the first year and $0.00 thereafter.
If the truck driver accelerated depreciation on the truck, his child support would be lower because income is a major determination in child support. If the depreciation was wrongful, child support would increase.
Many Michigan divorce and Michigan child support lawyers never look past the tax returns when determining child support. Careful tax planning and the right lawyer can maximize or minimize your child support award.
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By: Daniel Findling