I consider myself and DH to be paid from the Inn. The money that we have after expenses - our income - goes to paying the things that I would use a more typical salary to pay for - food, clothing, taxes, our share of the mortgage and property taxes, etc. Why isn't that the equivalent to paying yourself?.
Yes, I agree. But some folks who taught aspiring classes I attended have said you should "write yourself a monthly pay check" They said it...Not me...
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I'm no tax person but I wonder if this advice is somewhat region specific. Example: NY has super high income tax so paying yourself would probably not be a good idea, while Florida has no state income tax so paying yourself might be a way to shift the money from some other category that might be taxed.
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I think you're right. Our inn is set up as a sole proprietorship, with DH as owner - and I draw a small (very very small) monthly paycheck in order to have a health care reimbursement coverage through the business. My monthly check is less than $20 - I have it all withheld for taxes, but then the business covers all of the costs for healthcare - insurance, prescriptions, etc. It is easier to do it this way than to take it as an itemized deduction and have to meet the minimums for income and % of expenses.
Profits on the inn are taxed as regular income (for us) by both federal and state entities. We pay property taxes on the house, with a portion charged out to us personally. We also pay all of those expenses out of the business account but use the owner's draw account so that it is noted as for personal use, not business. We occasionally write ourselves a check out of the business account if we need cash for our day-to-day living expenses, also against the owner's draw.
I understand about the business not paying all your personal expenses - our first two years here we drew on our own savings because we were given false information about the income level of the inn when we bought it and because we found more capital improvements and repairs that needed to be made right away, rather than after we fixed the business. The last four years have been different and we have a positive income and cash flow.
My point was that even though we don't 'write ourselves a paycheck', I feel 'paid' by the business because our personal expenses are covered by income/cash flow from the business, including the cost of a roof over our heads and food on our plates. And my magazine subscriptions.
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