Many people who sell products through house parties do so because of the discount they get when they buy their own items. Others take the idea of becoming one of the best sales representatives in the company very seriously. How he views himself matters at tax time, because his business goals determine how he should treat that income and any money spent on those sales on his tax return.
Whether your goal is simply to buy products at a discount, help out a friend by hosting 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 representatives as miscellaneous income on your personal tax return. Under IRS rules, you are engaged in a hobby that produces occasional income.
When your goal is not just to make a few sales, but to build a long-term business, sign up new hostesses so you can build your sales force, and put in place a realistic business plan to achieve your goals, you can report your income on the Schedule C tax form for small businesses. Because you operate for profit, under the current tax code, your sales efforts are considered a business transaction. A business owner can write off expenses that exceed the income of the business.
The IRS has house party sales representatives lumped in with other part-time occupations that are typically carried out as a hobby. That is why those who are operating as a business are prone to tax audits. But, that’s never a problem when you keep good records. A hobby audit is usually discarded once it produces a solid business plan, well-organized financial records, and documentation of the changes implemented to increase your profits.
A sales representative using the Schedule C tax form may write off all normal business expenses; When you engage in a hobby, you cannot deduct more expenses than the income your hobby produces. Both are required to report inventory costs according to IRS laws, deducting only items sold, carrying unsold inventory expenses to the following year.
Operating in a profit-oriented manner will not only increase your sales, but also 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. plus.
Understanding what the IRS expects from an independent sales representative is an important part of running a successful small business. And you will pay less taxes.