I have a sole proprietor client. They have paid two babysitters. One was paid part out of his personal checking account and part out of the business checking account (babysitter#1). The other was paid solely out of his personal checking out and used the transaction paid to babysitter #2 as a distribution to the owner of the company instead of paying babysitter #2 directly from the business. Babysitter #2 is not set up as a vendor in the business at all. He uses QuickBooks 2013. His personal checking account is not listed in his accounting program. He is requesting I create two 1099's from the business for babysitter #2 & 1 which are paid from the personal checking and listed as distributions to owner in the business because it's for his wife while she worked. I explained that I cannot do this, however these expenses can go through his schedule C. He is still persistent because the accountant he used last year did this...(not sure if she should have)
Can I create a 1099 from the business for the amount he paid the babysitters out of his personal checking account even though these payments were paid only through the personal checking account?

not sure if you have already prepared the information returns. But the answer is no, you should not create Form 1099 from the business nor can you deduct the expenses as business expenses. Theses expenses are personal in nature and he should not have paid it out of his business account in the first place. These expenses should not go on tax return as any type of deduction against ordinary income. If you are a responsible preparer, you should either insist your position or not accept him as a risky client.

#1;he can do this; but, depending on the type of business entity he started, it may not have actually been necessary, but it was still a good idea to keep his business and personal finances separate. Draw" is the amount taken out by the owner of a sole proprietorship / partnership/llc for his or her personal use. The owner's draw should be the only place where personal and business intersect.

#2;I guess asfara biz is concerned, he doesn’t necessarily carry personal acct in QB.

#3;you can do that and he issues 1099s to the babysitter from his draw acct and deduct them on his Sch Cof 1040.




#4;as mentioned abv ove, The owner's draw should be the only place where personal and business intersect. A self-employed business owner does not usually take a salary. Instead, he or she makes an initial investment ,capital contribution, in the business from personal funds and during the course of the business takes money out as draw and invests more money, from profits or from personal savings. Typically, a check is written on the business account to the owner and it is deposited in the owner's personal account. He needs to Be sure to keep business and personal spending separate.

Thanks for the response. No I did not do what they wanted. I stood my ground.

OK i got you; you can talk to the IRS for more info in detail on the isssue.