Home Daycares That Pay Yourself Through Payroll Account

[permanentvacation]

Do any of you guys that operate a home daycare and only have yourself and no employees pay yourself through a payroll account?

If so, can you tell me the benefits of doing so as well as the negative aspects of it?

[AmyKidsCo]

I have not, but I've used Paypal for my hobby business since 2005. My biggest concern with Paypal is that if someone files a dispute against you and Paypal decides in that person's favor they'll pull the funds from your Paypal account and tell you about it afterwards.

I only keep $25 in my Paypal account because of that. I withdraw everything to the bank, but my account only allows me to withdraw $500/month. (My hobby business is so small that's not an issue : I considered using Paypal to process credit card tuition payments but with the $500/month cap I wouldn't be able to withdraw everyone's payments each month. But there may be other types of accounts that allow for higher withdrawals - I wasn't motivated enough to look.

[Thriftylady]

I wouldn't do it for just myself. To much paperwork and hassle each week. Now you can open a daycare account and just cut yourself a check from that each week, as if you are paying a salary. But that would still add more paperwork and I just don't want to deal with more paperwork than I already have to deal with.

[Controlled Chaos]

I do. I have an accountant. I set it up this way initially because I had an assistant. Though, I don't have one currently. I get a salary directly deposited into my personal account from the business account once a month. Taxes come out of my pay check. I then make an additional profit transfer to my personal account that is not taxed as my personal income. My accountant explained it to me a year ago when we set it up, but I'm afraid I don't remember all the details. I love having an accountant to manage the taxes. I like that I get an emailed paystub monthly which is useful when needing a proof of income for something, rather than having to bring in a daycare profit and loss statement or something.

[permanentvacation]

Controlled Chaos,

Thank you for the information. I had not even thought of getting my paycheck directly deposited from my business account to my personal account. That would be convenient.

I have an accountant, but he's on vacation, so I can't ask him about this right now. I have previously considered paying myself through a paycheck. But didn't really look into it. And a few days ago, a representative from ADP (a payroll company) called me asking if I would be interested in setting a payroll account up. So, now I'm really looking into doing it, but I can't talk to my accountant at the moment.

I would possibly like to receive a paycheck rather than just file business taxes for the reason you stated. Simply so it would be easier to get loans and prove your income easier than having to go through your taxes/profit & loss statements when you need to prove your income to someone.

As you guys know, I've been working on paying my bills off. My hope and plan is to buy a house in the next couple of years. I need to get my debt paid off, raise my credit score, and get the money for a down payment together. I have bought 2 houses while my (now ex) husband and I were both self-employed and I remember what a huge pain it was to have to use our taxes as proof of income to buy a house. To make it easier to prove income to buy a house, I thought it might be better to pay myself through paychecks.

[permanentvacation]

Controlled Chaos,

If you don't mind, I have another (and maybe more as I think this through).

Do you also write things off on your taxes? I'm confused as to how I could receive a paycheck as well as have business expenses that I write off. Can you do both?

[Controlled Chaos]

My paycheck effects my personal taxes. I still deduct all expenses that I pay from my business account. I believe I am also able to deduct my paycheck as paying me (employee of the LLC) is a cost of doing business. I would chat with your accountant about it. My accountant handles payroll and taxes. We had a long chat about my personal and business goals before making decisions.

[permanentvacation]

Controlled Chaos,

Thank you. I definitely plan to talk to my accountant. But he's on vacation right now. Since a payroll company (ADP) solicited me a couple of days ago, it got me thinking a lot about paying myself a paycheck and I wanted to look into as much as I could myself since I can't talk to my accountant until he gets back from vacation.

I called a couple of banks to see which one I want to use for my business account. My NEW bank, the credit union sounds like the best deal to me. Their business banking account that I can use for my payroll account pays interest, has no minimum balance requirement, and allows 150 transactions free per month! So, if I do start paying myself a paycheck, I've already decided on a bank for it.

I just need my accountant to come back from vacation so I can talk to him about this.

Thank you for your information and suggestions.

[permanentvacation]

AmyKidsCo,

My sister also has a Paypal account that she uses for her jewelry business. I wonder if she knows that Paypal would automatically pay someone from her account if they disputed something and they agreed with them. I'll have to mention that to her one day.

But I am not considering Paypal for my situation. I'm thinking of opening a business checking account so I can pay myself a real paycheck so it would be easier to prove my income to buy a house. Using paycheck stubs for obtaining loans is so much easier than using your taxes especially if you write things off which then lowers your adjusted gross income.

[permanentvacation]

ThriftyLady,

Yeah. The first thing that I thought of was all the paperwork, bank transactions, record keeping, and how much I would have to REMEMBER to make those transactions and upkeep the records so I don't mess myself up with this!

But, I know that proving your income with paycheck stubs is so much easier than using your taxes as a self-employed person when it comes to buying a house.

[daycarediva]

ThriftyLady,

Yeah. The first thing that I thought of was all the paperwork, bank transactions, record keeping, and how much I would have to REMEMBER to make those transactions and upkeep the records so I don't mess myself up with this!

But, I know that proving your income with paycheck stubs is so much easier than using your taxes as a self-employed person when it comes to buying a house.

IF (big IF) I continue daycare I am going to do payroll. My dh does for his company and his income is more 'provable' than my income. Even with a credit score of close to 800 for dh and over 800 for me, banks turned us down for a new build recently because of my 'lack of income verification' even though my tax returns show a steady profit of 60k+ for the last 6+ years (which is what they asked from us)

The loan officer specifically said "if you had paystubs" which is mind boggling to me, because the income is from the same self-employed source!