Many people who sell products through house parties do so for the discount they get when they buy their own treats. Others take the idea of becoming one of the company’s top sales representatives very seriously. How you view yourself matters at tax time, because your business goals determine how you treat that income and the money spent on those sales on your tax return.
If your goal is simply to buy discounted products, help a friend by throwing a party or two, throw a party just because your friend needs to hire a new sales rep this week, or join in just for fun. and the social aspects of selling a particular product, you must report all income from sales reps as miscellaneous income on your personal tax return. According to IRS rules, you are involved in a hobby that produces casual income.
When your goal is not just to make some sales, but to build a long-term business, hire new hostesses so you can develop your sales force, and put a realistic business plan in place to achieve your goals, you can declare your income on the form Schedule C for Small Businesses. Because you are acting for profit, under the current tax code, your sales efforts are considered a business operation. A business owner can write off expenses that exceed the business income.
The IRS has house party sales representatives grouped with other part-time occupations that are typically carried out as a hobby. That is why those who operate as a company are prone to tax audits. But that’s never a problem when good records are kept. A hobby audit is generally discarded once a solid business plan, well-organized financial records, and documentation of changes implemented to increase your profits are produced.
A sales representative using the tax form in Schedule C can write off all normal business expenses; When you participate in a hobby, you cannot deduct more expenses than the income your hobby produces. Both must report inventory costs according to IRS laws, deducting only items sold, carrying unsold inventory expenses to the following year.
Operating for profit will not only increase your sales, it will allow you to grow your business with pre-tax dollars. A self-employed sales representative can take advantage of the same tax laws that large business owners use to purchase equipment, home office furniture, computers for business use, to further their business education, and much, much more. more.
Understanding what the IRS expects of the Independent Sales Representative is an important part of running a successful small business. And you will pay less tax.