Business Income Needs To Be Clean

In 2018 Illinois changed to an income shares state for child support purposes. This means that instead of child support being based solely off of the net income of the parent obligated to pay child support, the Illinois Marriage and Dissolution of Marriage Act (the “IMDMA”) now calculates child support based on the non-custodial parent’s share of what the combined income of the parents is. For example, if mom makes $6,000.00 per month after taxes and deductions, and dad makes $4,000.00 per month after taxes and deductions, and dad is the non-custodial parent, then dad would be responsible for paying forty percent (40%) of the guideline amount of child support for a household that earns a net income of $10,000.00 per month.

This calculation can be very easy when both parties are employees of a company and receiving W-2 earnings from their employer. Taxes are automatically deducted from their paycheck, and it is relatively standardized. However, when one of the parents is self-employed, owns a company, or receives rental income determining “net income” becomes less clear because business owners and non-employees do not have to pay standardized taxes on a weekly, bi-weekly, or monthly basis. Income may also fluctuate from quarter to quarter as well.

The IMDMA allows for a person to deduct ordinary and necessary expenses required to carry on the trade or business for any income derived from a sole proprietorship, closely held corporation, partnership, or other flow-through business entity and self-employment. (750 ILCS 5/505(a)(3.1)). Business owners or participants in these entities can run into problems that may inflate their net income if they do not maintain clean books of business that can clearly be distinguished from personal expenses.

Avoiding a higher child support obligation should be more motivation for business owners and entrepreneurs to consult with an accountant to keep your business clean, and contact us to make sure that your business is structured properly to maximize its potential in more than just the domestic relations aspect.