Year-End Accounting for Direct Sales

It’s that time again—the dreaded time of year when the feeling of overwhelm kicks in and you have to find time to scour all of your accounts for any transaction that could conceivably have been an expense for your direct sales business.

But if you follow our simple three-step, 15-minute process throughout the year, you’ll only need to spend a little time wrapping things up to be ready to file your taxes!

I’ve heard from many of our customers that before using Direct Sidekick, it took them many stressful weeks of working on their bookkeeping every spring, at night or on the weekends, to accommodate their full-time job to finish their tax accounting.

Not for you, though. All you need to do is follow along below, and you’ll be ready to file your taxes in no time!

Here is exactly what you need to do to finish your year-end accounting so you can file your taxes for your direct sales business using Direct Sidekick.

What you’ll need to file your taxes for your direct sales business:

• Your 1099-NEC from your company (available by January 31).
• Your 1099-K from your payment processors (Square, Venmo, PayPal, etc.) (available by January 31).
• The Profit & Loss report for your business.
• The Cost of Goods Sold (COGS) report if you sell inventory.
• Your home office deduction worksheet.

If you earned more than $600 for the year, you will receive a 1099-NEC from your company. If you earned less than $600, you still need to report the income on your taxes.

Similarly, you will receive a 1099-K from your payment processor if you’ve sold over $20,000 through the program for the year. This drops down to $5,000 of sales for tax year 2024. If you sold less than the stated amounts, you must still report the income on your taxes.

Before printing your Proft & Loss and COGS reports in Direct Sidekick.

Verify that your payments for your on-hand inventory for resale are categorized as Inventory Order Payments. Inventory sold lowers your income for tax purposes. Your costs are added to cost of goods sold (COGS) when you sell it. You cannot expense your inventory when you buy it.

Most companies will provide you with a report for what is on your 1099. If there is anything on that report that is not currently in Direct Sidekick, you’ll need to enter it.

For example, my wife’s company provides a report showing things like her incentive trips, free branded swag, free/earned products, etc. She enters that in Direct Sidekick as income.

If this whole amount needs to be added, you can add it as one lump sum as an income transaction at the end of the year, as the report isn’t available throughout the year. If some of this is already in Direct Sidekick, you can add the amounts that have not already been recorded.

The next step is to expense some or all of this.

Here are some common examples of things you can expense from your 1099:

• Incentive trip values. If you attended business activities during the trip, you will also want to add it as a travel expense.
• If you earned swag and use it for advertising purposes and giveaways, you can expense the value of these items on your 1099 and advertising expenses. If you keep it for personal use, you cannot.
• If you earned free products that show up on your 1099 report, you should edit your purchases to add the values from your 1099 as the product costs. If you don’t, you’re essentially claiming this as income twice. But adding the value as the product cost will offset one of the income transactions (your 1099 and your product sale).
• If you designate the free products received on the 1099 strictly for giveaways and advertising reasons, you can expense that amount as an advertising expense.

You do not need to enter these individually. Let’s do things the easy way (our philosophy at Direct Sidekick!) and enter the totals at year-end.

Enter your mileage using the car and truck expense category. This is a dollar amount in Direct Sidekick and not the number of miles. You can enter this monthly or once at the end of the year. Only include the amount for business travel. If you use a mileage tracker like MileIQ, you can download a report showing how many miles you drove for your business and the deduction amount for your taxes.

Enter your home office expenses using the Home Office expense category. There are two methods for calculating this amount, and you can read more about them in our home office deductions post. Choose the method that leads to the largest deduction. You can enter it yearly or monthly, whichever is easiest for you.
You can change between the two methods every year, so be sure to figure out which method gives you the largest deduction each year.

A very important Note when filing your direct sales taxes

As your 1099 amounts are already added to your Profit & Loss report in Direct Sidekick so you get a full view of your business’s profitability, there is one last thing you’ll need to do.

If you work with an accountant to file your taxes, you’ll simply need to let him or her know that your 1099 income is already included in your Profit & Loss Report. Your accountant will take care of the rest.

If you do your taxes yourself, with a program like TaxAct or TurboTax, the program will ask you for your 1099 income. You will need to enter the amounts from your 1099’s. Next, it will ask if you have any other income for the year. You will say “yes” and enter the income value from your Profit & Loss report minus the amount shown on your 1099. For example, if your income value in Direct Sidekick shows $20,500 and your 1099 shows income of $10,000, you’ll want to enter $10,500 as your other income.

That’s it; you’re ready to file your taxes!

If you’re not already using Direct Sidekick (why not? 😉) and you’d like to do your accounting and inventory tracking easily this year, give Direct Sidekick a try. With our monthly 15-minute, 3-step accounting process, your books are always up to date.