Can A Self-Employed Provider Pay Herself?

At a recent tax workshop in Montana a family child care provider said she paid herself $20 a week to clean her home. She then deducted this as a business expense.

This is not allowed.

If you are self-employed you can't pay yourself for doing work for your business.

You can't pay yourself a salary for working for yourself.

You are entitled to all the money that you don't spend on your business. You can simply take money out of your checking account and use it however you want. Or, if you have a separate business checking account you can transfer money to your personal account. When you do either of these activities it's called a "personal draw" in accounting lingo.

But, when you take money out of your business for your personal use, it's not a business deduction.

Inform Your Tax Preparer

This Montana provider's tax preparer had been deducting these payments to herself because the provider described them as "cleaning expenses." The tax preparer never inquired as to who did the work.

You are responsible for whatever is on your tax forms. In an audit, this provider would lose this deduction and owe some interest as well. Her tax preparer can't be held accountable because the tax preparer didn't know what she was doing.

You want your tax preparer to be asking lots of questions about your business and your deductions. They will probably not ask to see your receipts. But you are responsible for informing your tax preparer about what you are doing to get the best advice about how your taxes should be prepared.

Tom Copeland - www.tomcopelandblog.com

Image credit: https://favpng.com/png_view/money-money-transfer-wire-transfer-bank-payment-png/MekrEP9t

For more information about record keeping, see my book Family Child Care Record Keeping Guide.