Car and Truck Expense (Mileage)
In direct sales mileage will be one of the larger tax deductions you will have. This, of course assumes you travel to home parties or vendor events. My wife’s mileage deduction was her second largest deduction category last year.
For 2017 the mileage rate is 53.5 cents per mile. What that means is if you drive 40 miles to and from a home party you can write off $21.40.
Well what if you do one party per week, 50 weeks per year?
This could be a write off of $1070!
I highly recommend getting a good mileage tracking app for your phone that tracks every trip AUTOMATICALLY for you. At the very least a pad of paper always in your car to track your mileage will suffice.
Remember, you can write off your miles to the bank to deposit your party checks, the post office to send thank you letters or hostess packs or when you drive to purchase office supplies, anything related to your direct sales business.
Don’t miss mileage deductions!
Once you have a good tracking app it is very easy to do and can be a large write off for you.
Contractors may be someone that you paid to setup a website for you. It is also possible to have an assistant as a contractor but there are a lot of rules to make sure they are not actually your employee. This includes not setting there hours among other things.
If they are working on their own time and not considered an employee you can write off what you pay them in this category. Be careful not to set specific hours when the assistant must work. This might be something you check with your accountant on.
If you pay a contractor (an individual or LLC) more than $600 in any given year you must provide them with a 1099-MISC by January 31st.
Legal and Professional Fees
This includes things like attorney fees, accounting fees and other professionals you work with.
Office Expenses are the expenses of running an office. Think monthly costs for apps such as Direct Sidekick.
If you pay a monthly fee to your direct sales company for an office suite or website this is an office expense.
If you have your own website, the hosting and domain name is also an expense.
Supplies are the things you purchase for your office. Think tangible, traditions office supplies here.
- File folders
- Printer paper
- Thank you cards
- Printer ink or printing services
Do you have to pay state taxes on your business? Well, great news (read sarcasm here)! You can write it off. Here are taxes that be written off:
- Income taxes paid at the state level.
- Employment taxes. If you have an employee you can write the taxes you paid for him or her out of your pocket such as social security, Medicare and for unemployment.
- Self-employment taxes. I deducted this from the examples at the beginning of this article when calculating how much you can save by tracking tax deductions. As you are self-employed and paying self-employment taxes the IRS allows you to deduct 50% of the taxes paid.
Travel write offs can be a bit tricky. You must keep great records and make sure you are only writing off business travel. You may deduct the following expenses while traveling for your business:
- Your transportation such as airplane tickets, bussing, taxi and your car.
- Baggage and shipping including if you have to ship supplies or inventory to the location.
- Car expenses, whether rental or standard mileage. Also tolls and parking fees.
- Costs for you lodging (hotel, condo, etc.).
- Your meals. You may write of your 50% of you meals during your trip.
- Dry cleaning and laundry expenses.
So what to do if you are combining business travel with a family vacation?
If this is the case you can only deduct things that are directly related to you business. You may not deduct expenses for your full family if you are the only one working.
For example, if my family travels with my wife for her business we can only write off the cost of a room that she would need not the full cost we incur. If a single room costs $125 per night but we have to upgrade for the full family to a room costing $200. We can only write off the $125.
Kiekover, Scholma & Shumaker, PC has an excellent article on combining vacation and business travel to maximize your deductions. One key point is to have at least one business appointment scheduled BEFORE leaving to your destination.
We were blessed with an all expense paid trip to Hawaii last year. We added a few extra days on top of that. The cost from the company showed up on the 1099 as income and we were allowed to write that off. Of course, we were not allowed to deduct the extra personal days we added.
Business Meals (updated for 2018)
Your direct selling business is not done solely in your home office is it?
How many times have you met with a potential recruit for coffee or lunch?
You can definitely write this off. As with all expenses keep your receipt and jot a note on it to remember who you met with and what you discussed.
To write this off you must have a business related discussion during the meal. If you are friends with the recruit getting together for a meal on Friday night and never talk about the business you cannot write it off.
How much can you deduct?
When it comes to meals you can deduct 50% of the total amount you paid. For example, let’s say you spend $50 on a meal with a potential new recruit. You can deduct $25 for that meal on your taxes. Still record the full amount and keep your receipt. You cannot deduct the cost full cost if you split the bill, only the amount you paid.
Similar to contract expenses above you can deduct all expenses due to having an employee. If you hire an employee you will have to handle payroll and employee taxes.
Do you have an assistant working with you? Some direct sales consultants do. They have someone help with setting up hostess packs, write thank you cards and so on.
Sometimes expenses don’t fit neatly into the other categories. That’s why the IRS includes an “Other Expense” category. Some things that fall under other include:
- Education expenses
- Subscriptions to professional publications
- Cell phones if used exclusively for work
The home office write-off is one of the wonderful perks of direct sales (as well as writing off mileage, of course). As long as you are using the office exclusively for your office you can write it off.
With direct selling you can also write off a home office used for storage of product and supplies even if it is not used exclusively for your business!
This is such a big deal that I have devoted another blog post solely to this topic.
Read the full home office deductions article.
Basically with the home office deduction you figure the percentage of you home that is used for your office. Once you have that you are able to deduct that much of your expenses.
For example, let’s say your home office is 10% of my house. You would then be able to deduct 10% of your mortgage or rent, utilities, property taxes, even water and waste disposal.
Wrapping it up
Tracking these direct sales tax deductions is simple to do with the right tools. Direct Sidekick offers an all-in-one web-based (mobile app coming soon!) for tracking your tax deductions.
We make this SIMPLE by automatically calculating your taxable business income in IRS Schedule C Worksheet form when you enter your transactions.
We do the hard work so you can spend your time on more important things!!!