Rhode Island Divorce Tip | Child Support Argument for the Self-Employed
February 17, 2008
Rhode Island Child Support is calculated based upon the gross income of the parents. While this may or may not be the best way to calculate child support because the expenses (sometimes mandatory and uncontrollable expenses) of a parent are not considered in the standard calculation, the fact remains that it is based on gross income.
What then happens when a parent is self-employed? A contractor, for instance, may have one or more contracts in which the contractor receives payment for the materials for a job from a customer in advance. The advance payment for materials typically becomes part of gross receipts for purposes of calculating the Contractor's income for tax purposes.
Assume that the contractor takes five (6) jobs like this in one year where he gets payments in advance for materials on contracts in the total amount of $47,000. Assume also that this Rhode Island Contractor performed 17 other jobs which generated $124,000 in revenues. This means that technically you have the contractor being paid gross income of $171,000. According to Rhode Island's Child Support guidelines the $171,000 would be an arguable figure to use for the contractor's gross income.
Many self-employed Rhode Islanders that end up in the divorce and family court system end up in this situation. Naturally, the use of the $171,000 figure is excessive and does not reflect a gross income that should be used for child support purposes because it disproportionately inflates the gross income/gross receipts factor for the self-employed individual and consequently increases the contractor's percentage of child support responsibility.
Self-Employed individuals should make every effort to argue that their gross income is actually their adjusted gross income after federally allowable business deductions. You can expect the deductions may be paired down by argument either with the family court or the opposing counsel and limited to essential deductions for the business as opposed to all IRS allowed deductions. It's reasonable to expect "de minimus" deductions such as professional publications and meals to be eliminated, although each case is different.
A self-employed's argument for child support is best made by arguing that your gross income is the same as adjusted gross income on your tax return which takes into account the self-employment deductions the contractor or self-employed individual is entitled to. The difference in the amount of child support that the self-employed individual will pay based upon the argument used can be the difference between night and day. Constructive use of this argument and extensive knowledge of the deductions you are entitled to is by far the most effective way to manage your child support burden.
Authored by:
Christopher A. Pearsall, Esquire
PEARSALL LAW ASSOCIATES
571 Pontiac Avenue
Cranston, RI 02910
Phone: (401) 354-2369
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