How to Pay Yourself Properly as an AFH Owner

Christina Nguyen
4 days ago
3 min read

Avoid IRS Issues, Protect Your Business, and Get Paid with Confidence

A Simple Guide for Adult Family Home (AFH) Owners

As an Adult Family Home (AFH) owner, you wear every hat imaginable — caregiver, manager, HR, compliance officer, and business owner.

You work hard to care for residents and keep your business running smoothly. But one question I hear all the time is:

“How do I actually pay myself?”

It’s a great question — and an important one.

Whether you’ve just opened your AFH or have been in business for years, understanding how to pay yourself properly can prevent tax headaches, keep your books clean, and help your business run like a true professional operation.

Let’s break it down.

If You’re a Sole Proprietor or Single-Member LLC

This is the most common setup for AFH owners, especially when starting out.

Here’s how your compensation works in this structure:

You don’t take a paycheck or W-2.
You don’t issue yourself a 1099 either.
Instead, you take an owner’s draw — meaning you transfer money from your business bank account to your personal account.

✅ How to Do It Correctly

Set up a business bank account to receive all AFH income and pay expenses.
Transfer funds to your personal account when you pay yourself.
Record the transfer as an “Owner’s Draw” or “Owner’s Equity” in your bookkeeping.

💡 Pro Tip: Pay yourself on a set schedule — weekly or monthly — rather than randomly taking funds. It helps manage cash flow and makes your finances easier to track.

If You’re a Multi-Member LLC (Partnership)

If you co-own your AFH with a spouse or business partner, your business is treated as a multi-member LLC.

Each partner receives profit distributions, not payroll.
Distributions follow your ownership percentage or operating agreement.
Each partner receives a Schedule K-1 at tax time to report their share of the income.

Just like with sole proprietors — no W-2s or 1099s for owners unless you’re an actual employee (which is rare for AFH owners).

What About Paying Family or Employees?

If your caregivers or family members help in the AFH, they’re treated differently.

Employees (including family members) should be paid through payroll, with proper tax withholdings.
You’ll issue W-2s at year-end.
Avoid paying anyone “under the table” — it can cause penalties and disqualify you from business deductions.

What Not to Do

❌ Don’t pay yourself directly from resident cash payments

❌ Don’t mix personal and business accounts

❌ Don’t issue yourself a 1099 — owners aren’t independent contractors

❌ Don’t treat business income like personal spending money

Keeping your finances separate protects you and your business from IRS scrutiny and simplifies bookkeeping.

Plan Ahead for Taxes

Here’s the part most AFH owners forget:When you take owner’s draws, no taxes are withheld — but you still owe tax on your business profit.

That means you should:

Set aside 20–30% of profits for taxes.
Make quarterly estimated payments to stay current.
Review your financials regularly with your accountant to avoid surprises at tax time.

Want to Grow? Pay Yourself Like a Business Owner

Even if your AFH is small, treat it like a business:

Transfer your pay formally (not casually).
Keep accurate records of owner’s draws.
Use clean, reconciled books to make informed financial decisions.
When profits increase, consider if an S-Corp structure makes sense for tax savings.

An experienced AFH tax advisor can analyze your income and recommend when to switch — but only when it truly benefits you.

Final Thought

Paying yourself properly isn’t just about taking money out of your AFH — it’s about protecting your business, staying compliant, and building a stable financial future.

When you do it right, you’ll have:

✅ Confidence in your cash flow

✅ Clear financial records

✅ Peace of mind knowing your taxes are correct

Ready to Set Up a Smart System for Paying Yourself?

I specialize in helping Adult Family Home owners set up clean bookkeeping systems, track owner’s draws, and plan for taxes — so you can focus on running your home, not worrying about money.

📱 Call Christina at 564.888.1687

📧 Email: christina@acuitytaxgroup.com

Let’s make sure you’re paying yourself the right way — and setting your AFH up for long-term success.