Knowing how those two responsibilities intersect is crucial if you are a business owner responsible for paying child support. In some cases, failing to fulfill your obligation can result in the loss of your limited liability company license.
We spent 2 months consulting with clients from different profiles on this topic. We also consulted with our team of legal advisors and professionals about everything you need to know as an LLC owner paying child support.
In this blog post, we explain how child support obligation works for business owners and how to comply with the law. We'll also provide tips on how to calculate the expenses.
Child Support Payments Explained
Regardless of whether or not the parents are married, the child support law compels biological parents to support their children.
Health care, education, extracurricular activities, and daycare fees are all included in the payments. The court has the authority to require that child support obligation be paid for college, transportation, and room and board as the kid grows older.
The parent who is responsible for settling child support owed must do so until one of the following conditions is met:
- The child becomes an adult
- The child becomes a soldier on active duty
- The court emancipates the child
- Parents lose parental rights/ child is adopted
The amount owed is based on both parent's income and the child's length of time with each parent. When calculating a business owner's income for child support, it's critical to evaluate all relevant expenses and factors to arrive at a fair figure for both parties.
Calculating the Child Support as an Entrepreneur
If you are self-employed or run your own business, calculating support can be more complicated. The first step is to start determining income .
Gross income is the total amount of money you make in a year before taxes, and other deductions are taken out.
To get an accurate number, you'll need to look at your profit and loss statement from the previous year. Excessive business expenses should be subtracted when calculating the owner's income.
Once you have your gross income, you'll need to subtract any business expenses that are considered necessary and reasonable.
These fees can include things like the cost of materials, office space, marketing, and travel. What is considered necessary and reasonable will vary from state to state, so it's essential to check with your local guidelines.
In other cases, the entrepreneur's spouse will claim that the business-owning spouse is lying about income and that the entrepreneur should be paying more. It may trigger an investigation or, at the very least, cast the business owner in a negative light, forcing them to justify their earnings.
When business owners cannot demonstrate their income or successfully defend themselves against accusations, they may be forced to pay a higher child support amount.
Different Sources of Income
As an entrepreneur, your income is not necessarily limited to a salary. You may also have income from investments, side businesses, stock options, etc.
When calculating business owners' income to pay child support purposes, it's essential to take all sources of income into account.
The more proof you have of all of these sources of income, the better. It's easier to figure out taxes if you keep track of your income.
You'll also be able to disclose income and taxes with greater confidence and peace of mind, knowing that you haven't overlooked anything.
Keep in mind that every type of business will be unique. It's better to figure out where your income comes from, how often you get paid, how much goes to expenses, etc.
Income might fluctuate substantially from month to month or year to year.
Suppose you give a statement to the judges that shows you have consistent income throughout the year, but your income fluctuates significantly from month to month.
In that case, you will be doing yourself a disservice and may end up paying more than necessary.
Make sure that any claims you make correctly represent the bigger picture and that they don't imply regularity where none exists.
Effect Child Support Can Have on LLC License
If you're currently paying child support, you may be wondering how this will affect your limited liability company license. The good news is that as long as you're up to date on your payments, there should be no problem.
However, if you fall behind on your payments, your limited liability license could be at risk.
It's essential to stay on top of your payments, as falling behind can have serious consequences. Contact your lawyer or accountant if you're not sure how to make a payment or have any other questions.
They'll be able to help you stay in compliance and avoid any problems with your LLC license.
Do I Have to Report My Second Job to Child Support in Texas?
You have to report this change to the Office of the Attorney General (OAG) Child Support Division. If you start a second job or receive an income increase and do not report it to the OAG, you could be held in contempt of court, which can result in penalties such as fines, imprisonment, or other consequences.
Is My LLC at Risk Because of Child Support?
It is possible that your LLC could be at risk if you fail to pay your child support as required.
What Is Ordinary and Necessary Business Expenses?
Ordinary expenses refer to those that people in your industry commonly use.
Necessary business expenses are those expenses that are very helpful, but necessary expenses must also be ordinary expenses to be tax deductible.
Establishing & Calculating Child Support for an LLC Owner...
Determining child support amounts as a business owner can be difficult due to the separation of LLC and personal assets. You want to make sure you are calculating it correctly so that you don't end up paying too much or too little.
There are many different ways to make a mistake in this process, so it is essential to document all of your income and show it to the court.
If you have any questions about handling child support, consult an attorney who can help you navigate the complex waters of child support fees. Thanks for reading!