On separation it is important to determine each spouse’s income in order to apply the Federal Child Support Guidelines and the Spousal Support Advisory Guidelines.
Usually we use the spouses’ income as stated on line 150 of their tax returns. This is their gross income from all sources before tax is paid.
If spouses are self-employed their line 150 income may not represent their true income because of the ability to deduct business expenses from income. Some of these expenses will be real expenses required to run their business but often these expenses will include personal expenses as well.
The most common personal expenses which a spouse will deduct on their return as business expenses are the following:
- All automobile expenses, not just the percentage that the vehicle is used for business purposes
- All cell phone expenses
- All meals, entertainment and travel expenses
- Home office expenses
- Depreciation or amortization
What we do is look at all of the expenses which have been deducted and determine what percentage of each expense is really a personal expense. These personal expenses are then added back to the spouse’s income in order to determine their income for guideline purposes.