Business Tax Basics

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Many people working with Direct Sales (both men and women) are probably venturing into the realm of a personal business for the first time. That’s something to be app loaded because there’s absolutely nothing in the world like being your own boss. Even if you (or she) have worked in someone else’s business, it’s just a totally different world running your own, especially when it comes to taxes and organization.

But being your own boss comes with a downside – huge amounts of responsibility. No matter what your previous experience or education, you will be expected to run your business professionally. If you don’t, and you get audited, there’s a good chance you’ll be in trouble. I’m going to try to lay down some basics here. By no means is this comprehensive, so take some time to educate yourself as well. This is a good place for a Direct Sales Husband to step in and help, check the books, and make sure nothing gets missed.

For every direct sales consultant, regardless of her level, here’s where you should start:

1. Keep your business activities as separate from your personal activities as possible. Get a separate business bank account (and pay all your business expenses out of it). Get yourself a business phone line. 

2. Create an office in your home. Even if it’s just a corner of a room, keep all of your business stuff there. Preferably have your own room for this (and know the square footage)

3. For each party, keep a record of mileage, the hostess gift(s), door prizes, food you’ve purchased. Returns of product. Make sure you include delivery mileage.

Check out the Party Tracker. (I created it for Holley’s Thirty-One business, but it may be generalizable. Feel free to modify it or make it your own. Don’t wait until later to track this stuff. Do it as soon as you can with each party.) Also make sure you track any money received vs money owed for product. This is critical!

4. If your company requires you to keep inventory, make sure you follow this closely. Keep paper records. Even if you keep electronic records, keep a paper copy in case you have hard-drive failure.

5. For each month, reconcile ALL of your income and expenses.

I have an Expense Tracker for this too. (Again, it’s for Thirty-One, but you get the idea.) I think it’s a good idea to use a folder system so each month has its own folder. You put all your Party Tracker sheets in it, along with any receipts for expenses in the month and the Expense Tracker.

6. Keep all your receipts that MAY be considered a business expense. Keep it in the monthly folder. Keep your folders together.

7. At the end of the year, you’ll have everything in one place. The 31 fold-n-file is a great item for keeping these things.

Common Direct Sales Expenses to Track Monthly:

  • Cell Phone
  • Internet Connection/Usage
  • Office Supplies (paper, envelopes, printer ink, postage, pens, small office items)
  • Specific Business Supplies (forms from your company, catalogs, display items)
  • Product (both for display purposes and inventory if you have to carry inventory)
  • Customer Incentives (items you give away, etc.)
  • Travel Expenses (if you do a distant show/expo/etc, or even just for traveling to your shows.)
  • Training & Education (there are personal coaches, all sorts of CD’s & DVD resources available)
  • Team Incentives (if your wife has a team, this can be pretty significant, but make sure she keeps it reasonable! I’ve heard stories of some not-so-reasonable team gifts/incentives. Don’t let her fall into that trap!)
  • Office Equipment & Depreciable Items (if you get a new computer for her business use, printer, scanner, fax machine, shredder, iPhone, etc.)
  • Advertisement (post-cards, mini-catalogs, business cards, print ads, online ads, etc.)

For higher level leaders with sizable teams track everything above plus:

1. Expenses for team meetings.

2. Travel and expenses associated with national conference.

3. You’ll probably have more education/coaching costs. Remember books you buy to help you learn the business or just to learn business in general count.

4. You’ll have more team incentives to track.

5. If you attend any leadership retreats with the company or if you hold your own team retreats.

6. Consider a business assistant to do tasks you dread doing or that you find trip you up entirely too often.

7. Talk to other successful direct sales people and ask them who they use as their accountant. Make an appointment to talk strategy. At least yearly. This is NOT during tax season. It’s best to do after tax season (after the accountant takes their annual vacation after the tax crunch).

8. Consider incorporating. Discuss this with your accountant and a lawyer. If you’re making 6 figures, this is probably the right thing to do.

The most valuable piece of tax advice I can give you is to make an appointment with a good, aggressive accountant to discuss tax strategy for your business.

This is NOT to discuss this year’s taxes. It’s to discuss NEXT year’s taxes and what you should be looking for, tracking, deducting, etc. Talk to all of the most successful business people you know personally and use the most highly recommended accountant. You don’t want one who is a push-over. You want someone aggressive. It may cost a couple hundred dollars (or less, depending), but it’ll be an hour of your time and money very well spent for the future.

Questions:

Girls: What other expenses do you have that I didn’t mention above?
Guys: What is your experience with running your own business? Did I miss anything in your opinion? 

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