Opinion ID: 853784
Heading Depth: 2
Heading Rank: 1

Heading: Salary from a Wholly-Owned Subchapter S Corporation

Text: For many parents, actual income is relatively simple to determine. However, self-employed parents present unique challenges to a trial court's calculation of income. Accordingly, the Guidelines provide some specific directions. Weekly gross income for the self-employed is calculated by subtracting ordinary and necessary expenses from gross receipts and may include a reasonable yearly deduction for necessary capital expenditures. Child Supp. G. 3(A)(2). This formula is required because determining the profitability of the venture or operation paints a better picture of the spouse's financial wherewithal than would a mere toting up of any formal compensation or in-kind benefit. McGinley-Ellis v. Ellis, 638 N.E.2d 1249, 1252 (Ind.1994) (citation omitted). Glass argues that the trial court erred when it failed to offset his business's expenses against the salary he received from it. Glass is the sole owner of Cook & Glass. Although the corporation is a separate legal entity, because subchapter S was elected, its income for purposes of federal and Indiana taxation is attributable to Glass. If no salary had been paid to Glass, the corporation's loss of $40,520 would have been a small profit. And if Glass operated the business as a sole proprietorship rather than a wholly-owned subchapter S corporation, the act of paying himself a salary would have generated no income distinct from the profit of the proprietorship. Rather it would have been simply a withdrawal of capital from the business. Otherwise stated, by paying himself a salary from Cook & Glass, Glass did not increase his net worth at all; he simply moved that amount from one form to another. For these reasons it is improper to treat the salary from Cook & Glass as income unless the profit or loss, net after that salary, is also attributed to the sole shareholder. We do not address whether the same considerations apply to a corporation not electing to be taxed under subchapter S, or a less than wholly-owned corporation.