Taxes…did anyone else throw up a little?? No just me??
Today we…and really I mean I got my crap together to get our taxes done…Let’s just say I tell myself every year I’m going to do this or I’m going to do that and make this process so much smoother…but every year it’s the same thing. LAST minute…looking for receipts and tabulating numbers. Someone grab the abacus cause I seriously think I broke Excel today! So here’s the deal! I’m going to share 5 ninja tips so you can be way more super awesome than us!!! — FYI I’m in no way a tax expert…so you do you and get PROFESSIONAL HELP should you get lost in the weeds.
1. Ya gotta file the return.
If you earn income, you generally need to report it to the IRS on your taxes. The company you represent is reporting it on their end. So, the IRS will know what you made even if you don’t file a return. But just because you do file a return doesn’t mean you’ll have to pay taxes. If your net business income, or your revenue minus your expenses, is less than $400, you won’t owe any tax. <—- you get that!!?!
Let’s say you only earn $150 selling your favorite product! If you have other income to report on your tax return, you should claim this $150. If you do not have other income, you aren’t required to file a tax return since your total earnings for the year were less than $400. However, you can‘t get a tax refund if you don’t file a return.
2. Report ALLLLLLLLLLLL your business income
When you are an independent consultant, you may receive different types of income:
- Income from sales when customers buy your products
- Commissions, bonuses, or percentages when someone you sponsor made a sale
- Prizes and awards / TRIPS!
- Products you receive for meeting a sales quota
- Other gifts offered by the company to you (not hostess gifts)
Most companies will send a Form 1099-Misc (Non-Employee Compensation) to independent consultants who earned over $600 or purchased more than $5000 in inventory in the previous year. This is the form you will use to complete your tax return. It should account for all your income types.
3. Know what you can deduct…..
Business deductions are a way to lower your taxable income. This can reduce both your regular income tax and your self-employment tax. Direct sellers can generally deduct ordinary and necessary business expenses, including:
- Advertising and marketing – Deduct the cost of business cards, fliers, even a nifty decal on your car.
- Home office – If your space is exclusively used for business, you can deduct $5 per square foot using the simplified method.
- Business miles and vehicle expenses – The miles you drive delivering product from one customer to another are deductible. Careful, though. You can’t deduct personal travel (even if you have a nifty decal on your car).
- Startup costs – Starter kits, training, and any fees you pay to become a consultant are deductible up to $5,000. You can choose to deduct or amortize these.
- Sample inventory – Products that you use for demonstration are deductible. If you sell the samples instead of using them entirely for demonstration, they should be counted as inventory.
Reminder: Inventory that you sell cannot be used as a tax deduction. The value of your inventory will be used to decrease your income before calculating taxes.
