Tax time. Ugh. There are as many ways to tackle this annual drudgery as there are tax professionals. Some will tell you to scan everything and do it digitally. Others are old fashioned and insist paper is most secure. One tells you to write down every mile, another will say you can estimate mileage with an online map search. Of course, the goal is to comply with every IRS regulation possible so that you aren’t flagged for an audit. Regardless of what your tax preparer asks for, there are some categories and some ideas here that can help you be ready for that appointment. Please note: I am not a tax professional and these Tax Tips are based on my own experience. Tax rates, allowable deductions and laws vary from state to state. Every direct seller is unique and every company’s compensation plan is different. Please consult a tax professional for current and accurate information for your area and your business.
Anything you touch for your business is potentially a deduction. From the car you drive to the food you eat, you may be able to write it off. The actual preparation of your return is where these items can be sorted out. But if you are just starting out and you’re not quite sure what to keep and what to throw away, just keep it all.
From the gas in your tank to the bill for your lunch out with a prospective team member. Even driving to your team meeting is a mileage expense. The categories are many and varied. Here are some examples. Office supplies: computer, paper, your planner, wi-fi, pens and order forms for customer use, postage and packaging. Do you keep inventory for your business? Every dollar you spend on products should be tracked.
Advertising: catalogs and other printed promotional items from your company, magnets on your car, business cards, the cost of a table at a vendor event, logo wear and printing costs for flyers. Phone services (may include wi-fi), the cost of your actual phone, internet services, apps you have paid for as well as other internet platforms such as the cost of a website, email service and any technical support you pay for throughout the year. Display items for vendor events: your table, table cloths, display racks, banners or signage.
In my business, I have recipes to test (I won’t make a recipe for the first time in front of someone’s guests – a trial run at home is mandatory) so the cost of groceries for the recipe testing is something I track. Additionally, my company carries spices, oils, vinegars and seasoning rubs, dough mixes and sauces. Any of these that I purchase from my company to use for demonstration or within the recipes I make at a show are deductible as business expenses.
Different companies have different things that are necessary. If you sell clothing, you should track not only the cost of your inventory but also things such as a dress form, camera, lighting, hangers, tote bins, garment bags, even lint rollers. Do you purchase or create samples of your health products, supplements or drink mixes? Are you paying for a beauty regimen or makeup for your personal use but you post selfies on social media showing before and afters or tutorials for application? And for those of you who are really rocking and rolling your business, you may have even employed an assistant to help you either in your office or in another role.
Travel and Entertainment is a big category in my business. Our National Conference is held in Chicago every year. I used to live several hours away and could travel by car or charter bus with my team. Now I live 5 states away and have to get on a plane each year. So I keep every receipt for my airline ticket, taxi, hotel, all meals and snacks, even so much as a bottle of water. The cost of registration for the conference is “education” and I always include that.
All of these should be tracked. Keep receipts. Scan them into software you can find them in later or keep actual file folders for paper receipts. Whatever you do, don’t leave anything out because if you can’t back it up, you can’t write it off.
My direct sales company classifies me as an Independent Contractor and provides me with a 1099 form at the end of the year (in January). I have attached a simple Schedule C to my regular 1040 tax return every year I have been a consultant (more than 14 years). I have found that I have been able to use software such as Turbo Tax every year that I have been in business except for one. Yes, the task is daunting no matter what and it definitely puts a strain on my relationship with my husband but we always get through it and save in the process by doing it ourselves. That works for me. I’m not saying it’s for everybody. These items and my stack of receipts and mileage tracking are what keep me mostly sane through the process.
Sorting and Storing
If you are using a tax preparer, and you’re willing to pay for them sifting through everything, then just save everything and hand it over. I can remember my parents saving every receipt and putting it in a shoe box under their bed for tax time. They wouldn’t sort or categorize anything, just toss it all in a box. The poor guy who had to sort through all that – I always felt bad for him. But that was the service they paid for. If you’re not interested in the high cost of someone else sorting through your every slip of paper or scanned image, or you are doing your taxes with your own software and time, you may want to be a bit more organized.
As you can see, the list of things you should be tracking and managing is quite extensive. The better job you do of keeping these items tracked and storing proof of your expense, the more your deductions will be at tax time. The more money you worked hard to earn, kept in your pocket at the end of the year, the better. What are some tax tips you use in your business? Are there deductions you use that I didn’t mention?
If the mere thought of even getting things ready for tax time stresses you out and makes you crave something chocolate, I’ve got you covered, click through to my website where I’ve already collected my chocolate recipes for you.
As much as it can be,
Happy Tax Time,