Paying Taxes In Direct Sales

Author: Susan Squier

A common question asked by prospective home party sales consultants is, "Do I have to pay taxes when I join a direct sales company?"

The tax fear is enough to turn them away unless your response is quick and educated. Sharing these tax deductions with your potential recruits can diminish their tax fear and eliminate the "tax" excuse.

State the tax law

When asked the dreaded tax question, answer with a simple, "Yes, because you will be operating as a sole business." Then immediately follow up with an explanation, "However, homebased business owners pay fewer taxes than the average worker because of business tax write-offs given by The Internal Revenue Service."

Business owners are expected to keep track of their sales and expenses, not just for tax purposes, but for survival purposes. No matter how small a business is, the owner must treat it like an empire, complete with its own banking account, debit card, computer, filing system, and office space―even if it's a corner of a room to start.

Every business owner should also track his/her sales and expenses in order to analyze the success of the business. If you are not monitoring these things then you can’t grow your business. The process doesn’t have to be elaborate, but it does need to be done. Besides, keeping proper business records makes reporting taxes a cinch.

Give tax write-off examples

Tax write-offs can make a huge difference in your bottom line―the amount of tax you pay the IRS, if any.

Deductions are taken off of your gross income before your taxes are determined... so while you may have grossed $10,000 for the year, the total you use in determining your taxes will be far less. For instance, if you gross $10,000 but have $5,000 in business expenses, the amount you pay taxes on is only $5,000.

Below are some of the most common business tax write-offs.

Bank fees,
Shipping costs: postage stamps, packing supplies, and freight fees,
Mileage to business related events and errands,
Office supplies: paper, pens, printer ink, envelopes, invitations, etc.,
Office equipment: computer, printer, copier, desk, chair, etc.,
On-line services: web hosting fees, Internet service, domain names, etc.,
Advertising and marketing materials like catalogs, business cards, and flyers,
Display merchandise,
Hostess gifts,
Food bought for a show or a meeting,
Child care so you can work,
A portion of car repairs and maintenance,
A portion of your telephone, electric, heat, mortgage, and water bill―if you have a home office,
Business related conferences: registration, hotel, airfare, and a portion of your meals.

Offer easy-to-use tax tracking tips

To make the process as painless as possible, start a tracking system and keep it up-to-date on a regular, monthly basis.

Invest in a tracking system that works with your personality―whether it's a simple filing cabinet or a software program, like Quicken Books.

Get a separate business checking account with a debit card.
Most direct sale companies offer direct deposit; your commission should be deposited directly into your business account. Let the bank keep your records; it’s free with your account and every month they send you a statement of all of your transactions.
Deposit every sale into your business account. Immediately following every deposit, write on the deposit slip what the deposit represents.
Do not use cash for business expenses, use your debit card or a business credit card. If you use your business debit card for all expenses, you automatically develop a solid record of sales versus expenses.
Write what that purchase is for on every register receipt, and do it immediately following each transaction.
When you pay yourself, use the debit card or write yourself a check. Make sure you write “Owner Draw” on the debit receipt or memo line of the check.
Hang a large envelope behind your office door and put all of your receipts for the month in the envelope. Then once a month, take down the envelope and do your bookkeeping, placing the receipts in the proper month's file.
Track your mileage, the IRS website posts the most current rate which can change quarterly. Keep a small note pad in your car to track your mileage.
Keep and file all household expenses. Some of these expenses may be deductions, too.

And finally, hire a tax consultant who understands the ins and outs of running a direct sales company. There are far more rules and regulations to take into place, and only a certified accounts professional can give you the legal advice you need to file your taxes correctly.

Get the most accurate tax information on the IRS website: www.irs.gov.