As we approach the end of the year, there are many folks beginning to think of Christmas, the New Year and…tax planning. For those involved with child support cases, it’s important to be aware of how tax issues can impact on the bottom line related to child support. By understanding the tricks that people use to cheat child support you can either increase or decrease your child support obligation based on the circumstances of your situation. Here are 2 tricks to look out for if you are concerned about the current child support level.
#1 Hiding Income: People can legitimately hide income through the use of clever tax planning. One way arises when one of the parents is self employed. Self employed individuals may deduct income from their bottom line by deducting business expenses. It’s important to take a close look at the type of business expenses are being deducted. For example, businesses often pay for car payments. This isn’t necessarily a proper deduction for child support purposes. The fact that a person can legitimately claim an expense for tax purposes doesn’t mean that the expense will be considered for child support. If you dig deep enough the court may actually add the expense back into a person’s income. The other way that income is hidden by having a person increase their tax withholdings. This has the effect of showing a decrease in the gross monthly income but in the end, the person may actually get this money back in the form of a refund. All they did was postpone the payment. Therefore, be aware of excessive withholdings in order to make one’s income look smaller.
#2 Hiding Assets: This is done by sending in estimated tax payments that may be in excess or withholdings that aren’t in line with the actual tax obligations. Under either scenario the money that is sent, in excess to the IRS, could be used to add to a support calculation or could be used to increase/decrease support. Be on the look out on how this could impact on the support obligation.