Are you DONE with tax filings or just getting started? I hope you are planning to file a Schedule C, I hear a lot of small businessowners do not and it’s a shame to pay MORE than you need to on taxes. Since this just might be on your *to-do* list, I wanted to share some tips my accountant has given me:
The first step in reducing taxes is to know what is deductible. A simple definition of a deductible expense is an “ordinary and necessary expense you incur while furthering your business for profit”. If that seems vague, keep in mind that Congress intended the tax code to be general, because all deductions are unique to the particular facts and circumstances of a particular person and/or situation. My tax guy has defined ordinary as “one that is common and accepted in your field of business” and necessary is “one that is helpful and appropriate for your business”. However, an expense does not have to be indispensable to be considered necessary.
In our network marketing business it is not unusual to have an expense that is used partly for business and partly for personal purposes. You can divide these expenses and deduct the part that is for business. (Example: I wrote off a trip to Mexico and even though I stayed with friends, the purpose of the trip was business so I wrote ALL my expenses off…airfare, rental car, food…but not the lodging since I stayed with friends. In the audit for that year, the auditor let it go after I explained it).
Limits on Losses: If you DO NOT carry on your business activity with the intention of making a profit, you CANNOT use it to offset other income. If you deem this to be a hobby, or for sport or recreation, then you are eligible to only deduct the expenses of the hobby up to the income the hobby generated. Some people DO choose to work network marketing as a hobby…so this applies to them! Read the rest of this entry »Tags: distributors, Network Marketing, network marketing business