If you’re self-employed and facing a child support determination in North Carolina, you may be wondering how the court will calculate your income. Unlike traditional employees who receive regular paychecks with clear documentation, self-employed parents face unique challenges when it comes to establishing income for child support purposes.
Understanding how North Carolina approaches this issue can help you prepare for your case and ensure your child support obligation is fair and accurate.
The Complexity of Self-Employment Income
Self-employed parents often have fluctuating income streams, business expenses, and tax strategies that can make determining actual available income more complicated than it appears on tax returns.
North Carolina courts recognize these complexities and have developed specific approaches to ensure child support calculations reflect a parent’s true ability to pay while meeting the child’s needs.
How Does NC Approach Self-Employment Income For Child Support?
Looking at the Full Financial Picture
While tax returns serve as a starting point, North Carolina courts understand that self-employed individuals may legitimately reduce their taxable income through business deductions that don’t necessarily reflect their actual cash flow or ability to pay child support. Your attorney will ask you to provide multiple financial documents to get a complete picture of your financial situation. Although this post references items the “court” reviews, keep in mind it is almost always the case that attorneys negotiate child support without the need for litigation. Whether negotiating or litigating child support, attorneys and the court look to the definitions and requirements set out in the North Carolina Child Support Guidelines, case law, and local rules.
What Are The Key Documents Courts Review?
When determining income for self-employed parents, North Carolina courts typically request and examine a comprehensive range of financial documents.
These include your personal and business tax returns from the last two to three years, along with any quarterly estimated tax payments and amended returns. The court will also review your business financial records such as profit and loss statements, bank account statements, general ledgers, and any contracts or invoices showing regular income streams and expense reimbursements or in-kind payments that significantly reduce personal living expenses (i.e. free housing, company car, reimbursed meals).
Additionally, you’ll need to provide personal bank statements, investment account statements, and documentation of any other income sources or business assets that could generate income.
How Do Courts Calculate Income for Self-Employed Parents?
Starting with Gross Receipts
The court begins by looking at your business’s gross receipts or total revenue before any deductions. This provides the foundation for understanding your business’s earning capacity.
Analyzing Business Expenses
Not all business expenses reduce your available income for child support purposes. North Carolina courts distinguish between legitimate business expenses and personal benefits disguised as business expenses. Legitimate business expenses typically include the cost of goods sold, necessary equipment purchases, required business insurance, essential business travel, mandatory licensing fees, and reasonable office rent or utilities.
However, courts often add back expenses that provide personal benefits or aren’t essential for business operations. These commonly include excessive entertainment expenses, personal vehicle expenses claimed as business use, home office deductions that primarily benefit personal living, meals and travel that appear primarily personal, and accelerated depreciation on assets or investment tax credits. .
The “Add-Back” Process
Courts frequently “add back” certain deductions to your income if they determine these expenses provide you with personal benefits or are not essential for your business operations. For example, if you deduct $500 monthly for a vehicle that you also use for personal transportation, the court might add back a portion of that expense to your available income.
Moving Forward With Confidence With Eatmon Law Firm, PC
Navigating child support calculations as a self-employed parent in North Carolina can be complex at times. The courts’ goal is to ensure children receive appropriate financial support while recognizing the legitimate complexities of self-employment income.
If you’re facing a child support determination or modification as a self-employed parent, don’t navigate this complex process alone. Our experienced family law attorneys at Eatmon Law Firm, PC understand the intricacies of North Carolina child support law and can help ensure your income is accurately represented and your child support obligation is fair and sustainable.
Contact us today at 919-435-0565 to schedule a consultation and learn how we can assist you with your child support matter. Our Wake Forest office serves families throughout Wake, Durham, Franklin, and Granville Counties.