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Posts Tagged ‘taxes and direct sales’

Come tax time, if you cannot find the paperwork, then it is hard to claim it.  You can, but if you get audited, they are going to want to see the paper to back up your claim.  For this reason, it is a good idea to keep organized through the year so when the tax season sneaks up, you are ready for it.

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Envelopes/Folders – You can organize your direct sales paperwork in a variety of ways. For me, I have found that having a large brown envelope is a great way to do it.  I have one envelope per month for sales and have it organized as such – party summary (from my company’s backoffice) and receipts relating to the party attached.  I also write the order number on the receipt just in case they get disconnected.  As I do not have a lot of expenses beyond what I purchase from my direct sales company, I have just one envelope for expenses.  I could easily itemize these out by month or by type.

Electronic Files – Just like my paper files, I have a folder on my computer for all my electronic invoices.  I have them sorted out by type of invoice (party, supplies, long distance, credit card) and sort them into those folders and make sure each file is labeled by date.  A few clicks and I am able to find anything that I need.

Excel Spreadsheet – I do all my accounting via Excel spreadsheet as I find it easier than using software.  But, software definitely has its advantages such as being able to prepare a report for you at yearend to use for your taxes.  That said, if you are not comfortable with either option, a spreadsheet with a list of various expenses is a good idea to prepare for your tax accountant.  I recommend a few columns though:  Item, Purpose, Date, Amount less tax, Tax.  This will help your accountant classify the expenses and record them in the correct spot.

One of the best things you can do for yourself is keep on top of your paperwork and have it sorted out.  This creates less stress later on and you will likely find it helpful throughout the year.

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Recently someone on my company’s Facebook group asked if she had to claim her direct sales business even if she did not make over $600 and as a result, did not get a tax form.  There was some thought that if you made less than that the government considers your business a hobby and then you do not need to claim it.

But… in reality, there are many reasons why you may not have received over $600 in overrides in your direct sales business.

  • Joined later in the year
  • Didn’t have a direct sales team

    taxes

    taxes (Photo credit: 401K)

  • Had to take time off due to illness

That said, you still need to claim this income on your taxes and the main reason is that you will also get tax deductions.  You can claim things such as a portion of your utility bills, car maintenance and gas as well as expenses around you home.  You need to be careful though that you are only claiming those which are legitimate.  If you are not sure, you can check out the website of your tax agency or give them a call.

IRS – Small Business

Revenue Canada – Business

If you have kept track of all your revenue and expenses throughout the year, the tax process should be relatively easy and painless.  If you have not, you will need to sit down a few evenings and get it sorted out. You can pay your tax accountant to do this for you but it will only help to increase your bill.

Sort the papers into those which brought in money and those which you had to pay out money.

Find the utility statements and organize them in some method that makes sense.

Know when you started your business if you only started it in the current tax year that you are working on.

Disclaimer:  I am not a tax accountant.  Please consultant with your tax accountant for the advice that is relevant to where you live and your situation.

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Did you sense the sarcasm in that title?  Personally, I do not mind doing taxes, but I have done my own ever since I started working and I also work in accounting so they are not the scariest thing to me.  But for many people, they are not comfortable with doing accounting or taxes for their direct sales business.  Hopefully this guide will give you some ideas to take the scare factor away.

Tax

Tax (Photo credit: 401K)

Revenues – You need to claim the funds that you made from your business.  This is the proceeds that you made on your sales.  For instance, if you made $100 on a sale but your cost was $75, then you need to claim that $25.  If you had a team, then you may have made commissions on them which will also need to be claimed.  Your company will issue you a tax receipt when the money they have paid to you is over $600, regardless of the mix between revenue from parties or team commissions.

Deductions – There are lots of deductions that you can take with a home based business.  Various expenses to keep your house running, costs associated with your mortgage, expenses associated with your vehicle and of course, those that are encountered in the course of your business. For many people, these deductions make the difference between owing money and paying in.  It is always best to consult your tax agency or tax accountant to find out what is and is not deductible and what you qualify for.  The deductions that I get may not be the same as the people on my direct sales team.

Expenses – Not only do you get deductions from your home and your car, you have legitimate business expenses.  Did you purchase postage to mail out catalogues?  How about paid for advertising in the form of business cards or a car decal?  Did you give away any product for raffles, hostess gifts or just to allow people to try the product?  All of these are valid expenses and ones that you need to keep track of for tax time.

 

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