This article was written at the request of a lot of customers who also moonlight as independent distributors. I am not associated with any of the brands below nor am I part of any multi-level marketing company.
Avon, Mary Kay, Amway, Tupperware, Herbalife, Initial Outfitters, Rodan + Fields, Monet, Plexus, Young Living, and Doterra are just a few well-recognized brands which provide opportunities for individuals who enjoy the role as an independent distributor for a multi-level marketing company.
A lot of people starting in these businesses become thoroughly surprised that they still must file a Schedule C and are subject to direct sales taxes, even if they made a small amount of money for these efforts. This article will help those who are direct sellers or looking at become one navigate the tax perspective.
All income is subject to taxes. Tax laws apply to everyone! Incomes and expenses of for-profit businesses are reported on a Schedule-C as self-employment income.
Self-employment holds any net profit from the activity to the 15.3% self-employment tax which is similar to how Social Security and Medicare tax employees would have withheld from their wages.
Home Office Deductions
Plenty of people within this industry use their homes for business places related to direct selling. Consider claiming a home office deduction on your taxes. However, please consult with a tax professional on the best way to calculate the portion of the home which is exclusively used for business. Places to store inventory and office space are all deductible. The living room or common areas must be excluded because they are shared communal spaces.
Transportation-Related Business Deductions
Transportation expenses related to conducting businesses can be deducted. The IRS suggests that the first and last business stops between your home are nondeductible. However, the mileage between home and a temporary work location can be. However, if your home qualifies as your principal place of business and you take the home office dedication, then you may deduct the daily travel costs between work and another place of business. There are great apps out there to keep up with business mileage.
Additional Business-Related Deductions
Samples and demonstrations are a major component of the direct seller business model. If you keep samples and products on-hand, these costs may be deducted.
Note, if you sell those demonstration kits/products rather than exhaust their value, then you must count it as inventory.
At no time, should you deduct these products if they are being used for personal reasons.
Get the Facts
A direct seller can be a rewarding opportunity to earn supplemental income with great products and an awesome team of people. Just keep in mind that the plunge will require you to report all of your income and expenses properly to avoid any complications with the IRS as a result of your work.
In the middle of your side hustle or just beginning it? Drop by M&M Bookkeeping, Tax, and Business Services for a quick chat.