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NET WORKING CAPITAL

Sent to Tax Experts March 25 05:02 PM

HI JON

HERE IS MY NEXT QUESTION : AS ALREADY EXPLAINED I AM GOING THRU A DIVORCE AND THE COURT APPOINTED ATTORNEY IS USING THE FOLLLWOING FORMULA TO DERIVE MY INCOME

W2 SALARY + NET INCOME EARNED OF THE CORP + AUTO LEASE EXPENSES
+ LEGAL EXPENSE INCURRED

NET INCOME OF S CORP - I AM OWN 95 % OF THE COMP0ANY AND HAVE 5 %
PARTNER AT THE END OF 2005 THE NET INCOME DECALRED IS $ 43,000.00
THE COURT APPOINTED CPA IS STATING THAT THE $ 43,000 IS PART OF MY NET INCOME . I AM IN 100 % DISAGREEMENT AS I DO NOT DRAW ANY FUNDS
FROM THE NET INCOME OF THE S CORP. THIS FUNDS REMAIN INSIDE THE CORPORATION AS PART OF THE WORKING CAPITAL OF THE BUSINESS . IN THIS REGARD MY QUESTION IS IT CORRECT TO SAY THAT THE NET INCOME OF THE S CORP CAN BE UTILIZED AS A BASIS FOR CLAIMING SPOUSAL SUPPORT ? I REPEAT I DO NOT DRAW ON THIS FUNDS THE S CORP DOES
PAY TAXES ON $ 43,000.00 AND MONEY REMAINS IN THE CORP AS PART OF NET WORKING CAPITAL?

 

Optional Information:
SAN RAMON , California

Already Tried:
NONE

Customer (name blocked for privacy)
Answer
March 25 5:14 PM (11 minutes and 42 seconds later)
         
ACCEPTEDCheck Mark

The determination of income for purposes of computing spousal support is somewhat different than that for computing taxable income. Nevertheless, most courts would include your share of the net S corp income as part of your available income under the theory that the choice of taking the funds, or not, is under YOUR control. S corps do not pay taxes - the net income flows through to the shareholders. If the corporation is paying taxes on its net income, then it would seem that it is a C corp instead of an S corp. If this is the case, it is possible to have the net income of the corp excluded from the support calculation IF it is not deemd to be an "excessive" retention.

I would be of the opinion that the auto lease expense should not be included. The only theory I am aware of that would allow inclusion of the legal expenses would be if the legal expenses are for the divorce proceedings. If that is the case, then it would be normal to expect the expenses to be attributed to you.

jon




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