My husband pays me a small salary or retainer fee to help him when needed in his business. I have a small business myself. Can he deduct the salary as an expense?

[clarkedu]

I report the income he pays me on a schedule C.  Shouldn't he take a deduction from his gross income?

[HelenaC · Accepted solution]

Yes, either as payroll expenses, if he issues you a W-2, or Contract Labor, if you are not an employee.

Per Publication 334, Tax Guide for Small Business - IRS.gov:

Employees' Pay You can generally deduct on Schedule C the pay you give your employees for the services they perform for your business. The pay may be in cash, property, or services. To be deductible, your employees' pay must be an ordinary and necessary expense and you must pay or incur it in the tax year. In addition, the pay must meet both the following tests. The pay must be reasonable. The pay must be for services performed. Chapter 2 in Pub. 535 explains and defines these requirements. You cannot deduct your own salary or any personal withdrawals you make from your business. As a sole proprietor, you are not an employee of the business.