Economic Damages for Self-Employed Claimants
Self-employment damages analysis reconstructs lost income from tax returns, 1099s, bank records, and business documents, adjusting for business expenses and the distinction between owner compensation and return on capital. Expect disputes about profit versus wage components.
Unique challenges
Self-employed earnings are often variable and may be commingled with business profits. The economist separates owner compensation (replaceable by hiring) from return on capital (not lost when the owner is injured if the business continues) (Tinari, 2016).
Documentation
Tax returns (Schedule C, Schedule K-1, corporate returns), bank statements, 1099s, and business operations documents establish the earnings base (Internal Revenue Service, n.d.).
Methodology
Economists apply before-and-after analysis, industry benchmarks, or replacement-cost analysis depending on the business structure and the injury's effect on operations.
Frequently Asked Questions
How are business expenses handled?
Expenses attributable to the injured owner's labor are reduced when that labor cannot be performed. Non-labor expenses generally continue and are not a damages component.
Related
References
- Tinari, F. D. (Ed.). (2016). Forensic economics: Assessing personal damages in civil litigation. Palgrave Macmillan. doi.orgPeer-Reviewed
- Internal Revenue Service. (n.d.). About Schedule C (Form 1040), profit or loss from business. U.S. Department of the Treasury. irs.govGovernment
- U.S. Bureau of Labor Statistics. (n.d.). Business employment dynamics. U.S. Department of Labor. bls.govGovernment
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