Do Classical Conversations (CC) Directors have to write a check (to themselves) for full tuition for each of their kids?
No. You do not have to write a check to your business for your children’s tuition.
If you pay your licensing fee based on student enrollment/tuition collected, you should track the total tuition collected including your own children in that head count. That way you is paying the correct amount for your licensing fee.
But for tax purposes, a you should NOT write your business a check for your own children’s tuition. Additionally, you do not include your child’s tuition in the income reported on your tax return (I’m assuming Karen, that you are operating your business as a sole proprietorship).
The reason is a principle in taxation called imputed income.
It states that a person should not be taxed when they avoid paying for services by providing the services to themselves.
There was a court case in 1928 that ruled that the imputed income from produce grown and eaten by a farm owner is not taxable as income to the farmer.
Source: https://en.wikipedia.org/wiki/Imputed_income#cite_note-9. See Footnote 9 Morris v. Commissioner, 9 B.T.A. 1273, 1278 (1928). Accessed January 20, 2019. See footnote 9
Conclusion: Karen must keep track of the tuition she would owe for her children so that she pays the correct licensing fees, but she does not need to write a tuition check to her business and she should not report her child’s tuition as taxable income on her business tax return (Schedule C).
Carol Topp, CPA
My book Taxes for Licensed Classical Conversations Directors is available through Classical Conversations. Find it in the Directors Licensing Guide page 54, Appendix M and click on “this document.”