If you own a business, whether a tax paying entity or a pass-through entity, and find yourself in Family court on the issue of Child Support, whether as a payor or payee, your business tax returns (or Schedule C) will be examined for certain deductions that Family Court will not allow in determining the amount of income available for child support. A business routinely uses “depreciation” as a business write off and while it’s permitted for IRS purposes, it is “backed out” in Family Court for the purposes of determing support.
IRS Section 179 allows taxpayers to deduct the cost of certain property as an expense. You would use IRS form 4562 for that purpose which is called Depreciation and Amortization. In Family Court, case law has decided that “depreciation” is not an out of pocket expense, it is not “required” for the operation of a business, and is a “fictional loss”; therefore it is not allowed as a legitimate business expense – it is backed out.
For example, in Asfaw v. Woldberhan (2007) 147 Cal. App. 4th 1407, 1425, it was decided, depreciation of rental property may not be deducted from annual gross income when calculating child support. [Los Angeles County – 2nd Dist.]
Then, in Rodriguez (2018) 23 Cal. App. 5th, 625, 635, it was decided that a self-employed parent’s depreciation deductions for motor vehicles did not constitute expenditures required for the operation of the business for purposes of determining income available for child support. [Stanislaus County – 5th Dist.]
Also, in Hein (2020) 52 Cal. App. 5th 519, depreciation of vehicles, equipment, Cessna airplane were not allowed to a rancher in determining his child support obligation. [Kern County – 5th Dist.]