It’s Tax Day!
If you’re a network marketer in the U.S., April 15 is actually a day to celebrate because you get tax deductions that most Americans (and Canadians) have access to but never use- home business deductions! The tax deductions from your MLM home business can save you and your family thousands of dollars per year. That extra money can be used for investment, debt reductions, charity, vacations, or new capital for your business.
It can be fairly easy to record your deductions. “Greens/analytical” types will probably have the most accurate records. When I was first learning about the tax deductions, I felt intimidated like everyone else. There are plenty of myths, rumors and IRS horror stories to keep millions of people from taking those deductions that are rightfully theirs.
When should you file your taxes in your home business? FROM DAY ONE. Your network marketing or affiliate company will send you a 1099 when your bonuses paid to you by them, exceed $500. That threshold changes, and it’s their job to track it. Even if you didn’t get a 1099, file anyway!! You can claim a number of expenses and post a loss. The loss reduces the taxable level of the family income, oftentimes lowering your tax bracket. How often you can post a loss varies. Never hesitate to post a loss. All you need to do is post a modest profit one year, and you can again post “losses”. Please check with your tax preparer.
Here are some things you can do to claim your deductions. And of course here’s my legal disclaimer - do not take this as legal tax advice. Please consult your tax preparer or accountant.
1) Keep every receipt you can. Without proper documentation you can’t take a deduction. So save everything until you learn which deductions work in your situation. Since I’m a “Blue”, and record keeping isn’t something I have patience for, I stuffed all of my receipts into a monthly envelope, like “April”. If I thought the receipt would fade, I made a photocopy (or you could scan it into your computer).
2) Use an accounting program for homeowners like Money, or Quicken. We chose banks that specifically would download all of our bank transactions into my Money program, saving me the trouble of entering them. I would categorize them immediately everyday, into the proper deductions (like advertising, supplies, computer expenses). At the end of the year, all I had to do, was run a single report on tax categories and voila! My stuff was done.
3) In the beginning, I trained myself to think in categories. Any activity or purchase that could promote my business, no matter how vague (remember, save every receipt), I would put in that category. I would let my accountant or tax preparer tell me if it couldn’t be used. After I learned which categories I could use, I then learned the specifics. Now, it’s second nature!
4) Learn some basic money principals for your business. You don’t have to be an expert, but you do want to be aware of the finances! I learned some things from Sandy Botkin, from a book called, Keep Your Hard Earned Money, and from my accountant. The magazine Networking Times also has several resources including Sandy Botkins’ materials.
5) If you do your taxes yourself, DO NOT use one of the tax software programs. They are notorious for not allowing you all of your deductions. Even the IRS is not legally responsible for its own tax advice. ( Really stupid, isn’t it?) Most distributors/affiliates will file a Schedule C for independent contractors. Some will choose to incorporate as an S-Corp. Incorporating your business requires a CPA, and may not be suitable for your situation, so make sure that you get professional advice on that. As an S-Corp, I became entitled to a greater array of deductions, and some extra paper work :-(. 90% of the time, a Schedule C is all you need.
The following are some of the categories and basic deductions that most people can take. Remember, this is just a starting point, and not legal tax advice:
Advertising: this can include, samples, purchased advertising, business cards, Your company's products that you give as gifts, *any* promotional item or giveaway, clothing that you buy with the your logo, or clothing you have your domain name printed on, websites, autoresponders, networking, etc.
Product testing: This includes any of your cmpnay's product that you purchase for the first time. My accountant deducts all of my Cinch and Enfuselle products, since my weight loss and skin advertise my business for me. We include any required personal volume required to qualify for a bonus, here.
Car: Mileage (get a $2 mileage log from Office Max), car repairs, etc.
Utilites:ALL of my cell phone expenses since I have a land line, a portion of the electrical and heating costs (fro my home office), internet.
Computer: supplies, ink, upgrades, paper, etc.
Food:Any groceries I buy for meetings, or entertaining potential prospects or people who could refer buisness to me. So, I write off lots of friends’ visits to my house.
Training:Anything related to personal development, including spiritual development, company trainings, learning about topics related to products your company sells, business, or anything that can be related to my business in any way.
Memberships:Since looking healthy is important to a my primary business, I can write off health club memberships. You can also write off any club memberships since you can meet prospects or referral sources there. The IRS at this time doesn’t require that you actually DID get business from there, but that you tried to get business.
Don't be afraid of the dreaded audit. Hire a good tax preparer or CPA who is familiar with network marketing. Take advantage of this gift that your home business affords you to maximize your income.
Karen Miner Hurd has been legally reducing her taxes since before cell phones. She lives in Virginia Beach, VA with her husband, 5 children, and a very sleepy cat. Her passions include Bible study and helping families create healthier futures. Learn more at http://www.gohealthygo.com