Tax Tips for Direct Sellers
You may have already filed your income taxes this year, but there’s also a good chance that you haven’t. Most of us have made the mad rush on April 15 to get that return in the mail. While it’s our duty, as tax-paying citizens to pay what we owe, we certainly don’t want to pay more than we owe. That would be absurd.
By familiarizing yourself with tax laws and regulations, you can ensure your tax preparation and filing goes smoothly. At the same time you’ll be covering all your bases in finding every deduction allowed.
Obviously, in direct sales your income is based on the amount of money you make rather than an hourly wage. As such there are some tax regulations that apply specifically to direct sales persons that will help you get the maximum number of deductions you can get without upsetting our friends at the IRS.
According to the IRS Website a direct seller is any one who:
• sells consumer products in the home or a place of business other than a permanent retail establishment
• sells consumer products on a deposit or commission basis, or to other persons who will sell the products in the home or place of business
• delivers and/or distributes newspapers or shopping guides
• receives compensation related to sales rather than to the number of hours worked
• performs services under a written contract
• is not treated as an employee for federal tax purposes
If you are in direct sales, you will report your income on Form 1040 Schedule C or C-EZ. Such income may come from:
• percentages of income received for sales
• sales of others who work for you such as helpers and sub-sellers
• prizes, awards, or gifts received from the business you sell for
• products received for reaching sales quotas
As with everyone else, a direct sales consultant is required to claim all income received for any purpose.
If you sell at least $5,000, the company you sell for is required to fill out a Form 1099-MISC on you. Whether they do or not, however, you are still required to claim the income you make from selling their products.
Since you’re required to claim all income, you will want to claim all expenses to reduce the amount of income tax you have to pay. As a direct sales consultant you are allowed to deduct all “ordinary and necessary business expenses.” This can include:
• office supplies
• long distance telephone charges
• business cards and other promotional items
• supplies such as bags, order forms, etc.
• advertising expenses
• website design and maintenance
• business mileage
You may also be able to claim a portion of the space in your home that you use for business if it is set aside for business use only, and possibly other expenses. Check with a tax accountant to be sure of what’s allowed.
According to some IRS documents, you’re not allowed to claim start-up expenses, such as the costs involved with searching for a direct sales opportunity, sales training for a specific product line, the fee you paid to join the company, or the starter kit you bought. These are considered capital expenses and are typically not deductible. The exception to this rule is if the company you sell for deducts this expense. Ask them what their policy to be sure.
As with many tax laws and regulations, there are exceptions based on certain criteria, and the rules do change. Check with a tax accountant to be sure of what’s allowed and what isn’t, just to be safe.
Since your business as a direct sales consultant is to purchase and sell merchandise, you will need a complete inventory of any products purchased at the beginning of the year and what you have on hand at the end of the taxable year. This will help the IRS to accurately determine your taxable income.
While taxes can sometimes seem overwhelming, doing them properly is such an important part of running a successful business, direct sales or otherwise. That’s why it’s important to realize that these tips are very generalized. Please check with a tax professional to ensure you follow all the guidelines and find every deduction allowed you by law.