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Tax time for Multi-Level Marketing Distributors

Whether you prepare your own taxes using TurboTax, use another program to do it yourself or have a tax preparer file your taxes, you still need to gather all your information let's review.


If you work with a MLM company you probably know what a MLM is, but let's review anyway. A MLM is a multi-level marketing company. These companies have chosen to pay you commissions and bonuses for you selling their products for them. Some examples of MLM Companies are Mary Kay, Color Street, Monat, Avon, Arbonne, Rodan + Fields, Herbalife, Dottera, Vorwerk, Young Living, Scentsy, Zyia, Vivint, Hempworx, Perfectly Posh, Optivia and many more. With that being said you are probably being paid commissions and bonuses.


If you NET $400 or more you must file taxes on that income

When you make more than $600 in a year with a company, that company will send you a form 1099-NEC (in prior years it was a 1099-MISC) at the end of the year. Picture of what the new 1099-NEC will look like is above. Now here's where the bookkeeping comes in, if you NET (you can figure out NET by taking income minus expenses to get your NET) $400 or more you must file taxes on that income. FYI there is no way around bookkeeping and business taxes and the standard or itemized deduction has nothing to do with running your business. Now that you have a 1099, what do you do with it?



 
What is bookkeeping??

What should have been done through the year is called bookkeeping. Unfortunately, That first year or so is always a mess. Then we learn we need to keep track of our bookkeeping throughout the year because it's way too hard to remember if you purchased anything with cash or if you used a different card than normal or if you forgot a receipt. The easiest and cleanest way to run a business is to make that business separate from you personally, so let's review what that means.


Start a seperate bank account for your business


First, You should start a checking account that is used only for business. This helps keep track of your bookkeeping. Expenses meaning anything the business needs to buy comes from this account. When you get paid by customers, get commissions from your company etc, deposit the money into this account. Now I totally understand we all have to use our own money to purchase things because we may not be making tons to start. What you do is transfer your personal money to your business checking. This is called an owner contribution. You can do the same thing if you want to use a credit card too. Just designate one of your credit cards to be your business credit card and only use it to buy things for your business. The best thing to do would be to pay this with your business checking. again if you need to use personal money to pay it, just transfer from personal checking to your business checking then you can pay the credit card from your business checking. This sounds like extra work right now, but I promise it's for a reason. We'll review in another article later.



Bookkeeping is keeping track of money that comes in aka income and money that goes out aka expenses.


Types of Income include:

  1. Your MLM company paying you commissions, bonuses, incentives such as trips and cars, or you transfer money from your companies' pay card to you

  2. Customers paying cash, Venmo, Zelle, PayPal, Cash App

  3. Running a credit card for a customer at an event

  4. Customers pay online through a credit card processing company you've found.

  5. Discounts - this would be subtracted from all above and reflected in the total for the entire Income category

Inventory & Cost of Goods Sold

Most MLM companies do not require you to keep inventory on hand, but you always can keep it on hand so your customers get it asap! When you keep inventory or stock it technically goes on your books as an "Asset" on the Balance Sheet. We'll go over that in a totally different article. For cleaning up your books let's just figure out how much stock did you purchase for last year? Now how much stock did you have on hand to start January 1st? How much stock did you have on hand to end December 31st? For tax returns we need to know:

  1. Beginning Stock as of 1/31

  2. Stock or Inventory purchased for the year

  3. Ending Stock as of 12/31

  4. The IRS wants to know all the above totals along with the COGS. With those totals we will figure out your cost of goods sold or COGS - this is the amount of inventory or stock you sold.

What are different types of Expenses:

  1. Advertising - business cards, samples, clothing made with logos, products you used to demonstrate on yourself

  2. Bank fees - fee for having your checking account, nsf fees and late payments

  3. Merchant fees - credit card processing fees, paypal fees etc

  4. Interest - credit cards, loans

  5. Auto - depending on actual VS mileage, your tax preparer will do the calculations to figure out the most beneficial - this could be fuel, parking, tolls, maintenance, auto insurance, lease payments, auto interest. Always keep a written record of your mileage. Best thing to do is to always get your oil changed in January, then you know how many miles you drive a year for sure. Another recommendation is MileIQ, you can easily track your miles and you review when you have time whether it's business or personal. Mileage is a big one that adds up quickly - this includes miles to the post office, to drop off orders, have a party, meet a customer, pick up promotional items, driving to conventions in your own car.

  6. Business licenses / permits - this could be for your city or county and for special events you do. You can also include your fictitious business name fee if you have a business that isn't your name.

  7. Continuing education - this is Any training to help you with your business, books, workshops, training, conventions, trade shows.

  8. Dues & subscriptions - memberships cost such as Amazon prime used for your business, the program cost you use to keep track of bookkeeping, inventory, invoicing. You can also include the cost of apps you use to make graphics too.

  9. Health insurance

  10. Free giveaways to customers - this is limited by the IRS to $25 a year, anything more you would have to send your customer a 1099 for the amount of income they received from you.

  11. Postage - mailing can add up quickly! This includes packaging, tape, postage from post office or online postage from stamps.com, Pirate Ship, PayPal Shipping etc.

  12. Cell phone - if you have a landline at home you can deduct your cell phone 100%. Many of us probably do not though. In that case, go ahead and pay your whole cell phone bill and ask your tax professional to calculate the business VS personal for you on this.

  13. Home office - this like auto will be calculated by your tax preparer. You need to let them know the square footage of the room or area you use for business along with the square footage of your entire home to claim the simplified method and the actual method. If claiming the actual expense you will also give them the utility cost, rent or mortgage and interest.

  14. Meals - for 2020 you will total all your meals and your tax preparer will claim the 50% that is allowed in 20202. BUT for 2021 & 2022 we are able to deduct 100% of our business meals! (prior it was only 50%) business meals are - meals with a customer to decide your business.Meals with your board of directors to discuss the business. Meals by yourself, outside your normal business area only.

  15. Travel - hotels, planes, car rentals, ubers (travel meals will still go under meals)

  16. Entertainment - entertainment is not currently deductible. (golfing, sports games etc)


COGS this stands for Cost of Goods Sold

  1. Purchase you made directly from your MLM company to sell to your customers

  2. Purchases you made from your teammates or other consultants to sell to your customers.

  3. Trinkets you will include in your package price that is being sold to your customer such as towel wrap, cup, nail file etc. (these could also be included in advertising or giveaways depending on what you do with it).


Profit and Loss - this is a form that sums up Income, COGS and Expenses


 

When to make your tax appointment: the best time to do this is after you have finished your income and expenses. Your inventory, mileage and home square footage will be added to the bottom as a note to your preparer. Contact your tax preparer, local or not (everything nowadays can be done remotely, making it simpler for you) and they should have a form available to you to enter the numbers into the form they have that is pretty close to a profit & loss.


 

Interested in making a remote appointment with our office?

We have skype meeting, phone meetings and more. To make an appoinment to review your documents please book online. You can view pricing for returns here, BUT for reading this article and planning your taxes we are giving a HUGE discount for sole proprietors aka you MLM Consultants. For 2020 taxes preparered in 2021, if you have all documents to us by 3/19/21 we will discount your invoice 70%!!!!!!! Please click Book Online to make an appointment and we will apply the discount for you when speaking.




Candice Beaubien Castner

IRS Enrolled Agent # 00135772-EA

CA CTEC # A282458


​Per IRS Circular 230, we must inform you that, unless otherwise expressly indicated, any federal tax advice contained in this website, including any communications, inquiry responses, attachments and enclosures, is not intended or written to be used, and may not be used, for the purpose of 1) avoiding tax-related penalties under the Internal Revenue Code or 2) promoting, marketing or recommending to another party any tax-related matters addressed herein.


 
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