Having a Direct Sales Business Is Just So Taxing

Taxing has a negative connotation, doesn’t it?  But I LOVE that our direct sales and network marketing businesses don’t have the traditional amount of taxes automatically taken out of our W-2’s.  By spending our money wisely and keeping track of our income and expenses each month, WE can decide what our taxable business income will look like, and that’s a true blessing.

If you’re running a direct sales or network marketing business, are you good friends with your Schedule C?  Do you know what a Schedule C is?  Are you gathering receipts and dropping them off with your accountant or tax preparer, or are you taking the time to learn the tax benefits of owning your own business and making sure that you’re taking full advantage?

A little known fact about me is that, a decade ago, I was a tax advisor for four years.  Through my company’s office I was allowed to do a number of free tax returns each spring.  My friends from my primary direct sales company were thrilled to come to me and have me teach them how a Schedule C can help them offset their W-2 income, or how they could take things they were purchasing anyway (a new computer, office organizing supplies) and take a portion or all of those items as tax deductions.  Many new direct sales professionals going into direct sales as a hobby don’t even realize that they can take a portion of their rent and utilities  as tax deductions (assuming a net gain on Schedule C).

Here are some tips.


Tax (Photo credit: 401(K) 2012)

1) Have twenty four large manila envelopes, two for each month of the year.  One envelope each month will be for income, and one will be for expenses.   On the front of the income envelope, you can have a chart each month breaking down your income by week and by category— week one website sales, week one party sales, week one reorder sales, for instance.  You’ll be able to look back at the year and see your up months and down months at a glance and know where to put your marketing efforts (were website sales down over the summer?  Why?  Were party sales down in the spring?  These things are good to know.)  Inside the income envies, you can have your weekly accomplishment sheets or sales receipts or however you tally your income.  On the front of the expense envelopes, you can have a chart each month breaking down your expenses by week and by category—- week two advertising, week two supplies, week two shipping costs, for example.  Inside the expense envelopes go your receipts.  You bought cotton balls and q-tips for your skin care biz at Walgreens?  Receipt in the envelope, expense tallied on the front.  You bought a display ad in your community directory?  Receipt in the envelope, expense tallied on the front.  EVEN IF you decide not to do your own taxes come the spring, you’ll easily be able to hand 24 envelopes to your accountant and not search a huge shoebox for the correct receipts to tally.

2)  Keep your personal and business money separate.  EVEN if your business is just a hobby.  EVEN if you don’t make a lot of money or intend to have a net gain.  If you’ve used a credit card for your business, you can take interest as a deduction.  This is NOT true if you have personal charges on the card.    Pay yourself weekly or monthly from the business checking account just as you would pay an employee.

3)  If you’re not sure if something could be a deduction, ask a pro!  Did you take a friend out to lunch last week?  Did you speak to her about becoming a client or team member?  Your lunch is deductible— even though you were mostly just “schmoozing”, you did talk business— I hope you saved your receipt!  You’re welcome to email me with tax questions and I’ll help as time permits.  I give lots of tax help to my team members.

4) Don’t take a loss every year.  Many of you in direct sales are in it very part time, as a hobby.  You’re making an income, but by the time you take the deductions to which you’re entitled, you have a Schedule C loss.   That’s FINE.  And for a couple of years you can take a loss on paper to offset you or your spouse’s W-2 income.  But don’t keep doing that year after year.  The IRS will red flag you and want to audit you.  An audit isn’t scary if you’ve been doing everything correctly, but it’s nice to avoid, no?  So some years you might want to forgo some deductions if those deductions will catapult you into negative numbers.

5)  Make sure you understand the rules of cost of goods sold.  Inventory on your shelf that is yet to be sold is NOT a deduction.  You take a deduction for WHAT YOU PAID for exactly what you sold.  There’s some math involved.  I can help you with this.  If you don’t understand it, ask a pro.  Don’t guess.

Enjoy your business, and enjoy the tax benefits!

Heather Price is a direct sales relationship marketing expert in Cleveland, OH. Have you ever lost a client because you’ve dropped the ball on keeping in touch and didn’t follow through? It’s so frustrating- what if there was a system that did that for you? Have you ever wished you had someone to print your marketing materials, stuff envelopes, address them and mail them for you? Wouldn’t it be nice if you could just click one button and include a gift too? That’s what Heather does- She sets you up with a system that does just that…. plus it reminds you when birthdays are coming up. The result is better retention and increased referrals from your clients, a more streamlined marketing system, and you’ll never again forget a birthday. You will feel much more organized and accomplished when you can send 700 holiday cards in five minutes. Try the system for free by calling her: 216-870-3142. Just say you want two free greeting cards! Interested in skin care or color cosmetics? Check out her other blog at http://freeskincarehelp.com
Send two free cards to promote your business:  http://cardswithheather.com

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11 Responses to Having a Direct Sales Business Is Just So Taxing

  1. Olga Hermans says:

    Awesome tips and very doable; I am going to use those envelopes! Thanks you; I am printing this out….to keep it handy. I might have a question…later in the year!

  2. denny hagel says:

    Really top notch advice! Grateful I have an accountant who oversees my bookkeeping!!

  3. Kim Hawkins says:

    Good solid advice Heather. I appreciate you sharing your knowledge of this taxing matter. :)

  4. Lorii Abela says:

    Great tips and advice, Heather!

  5. Wow some great tips. Some I was aware of and others not so much. Love the organizational ideas though.

  6. Great tips Heather! Thanks for sharing. I do use an accountant and tax preparer for business.

  7. Great tips Heather…I love the simple doable ways to keep track of expenses. Thanks so much!

  8. Carol Giambri says:

    Heather, great tips. Never thought about envelop method. I usually place all our paid bills in one place. I get a year end summary from credit card company as we charge all this way. Thanks tons.

  9. Oh! Thanks for writing this. Now I know who to go to with questions! :)

  10. Edmund Lee says:

    Very simple and actionable steps that you provided here. I love how they’re broken down so easily. Thank you!

  11. Excellent tips! Thank you!

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