Tax Tips for Direct Sales

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Direct sales offers entrepreneurs flexibility while earning an income. The direct seller determines how much or how little to work and sets personal sales goals based on those hours. As independent contractors, direct sellers are required to pay taxes on their income. Here are some tips to minimize your income tax bill as a direct seller.

Startup Expenses

You can deduct startup expenses the first year you're in business, or capitalize those expenses and deduct a portion each year. If you expect higher sales in future years, capitalizing the startup expenses will allow you to receive a partial tax deduction over several years. If you want to reduce taxable income for the first year, you should to deduct the startup expenses that year. Startup expenses include researching various direct selling businesses, training expenses and the purchase of a starter kit, and can be deducated at 100 percent up to $5,000.You must attach a statement of intent to your tax return.

Travel Expenses

Direct sellers showcase their products at home parties and vendor shows. Many of their suppliers also conduct periodic conferences that offer training on new products, selling techniques and business marketing. Traveling to these events often incurs transportation, lodging, meal and other expenses. These costs can be deducted on your tax return. Maintain records for each business-related trip, including vehicle mileage, receipts and a journal for cash transactions. Make notes on these records that state the date and purpose of each trip date.

Home Office

If you maintain space in your residence for the purpose of running your business, you can generally deduct the costs associated with that space from your income tax. The deduction allowed is the ratio of the square footage of the office to the total square footage of the home, applied to mortgage interest, property taxes, insurance, repairs and depreciation, as well as utilities. Thus, if your residence is 2,000 square feet, and you use a 200 square-foot room exclusively as a home office, you can deduct 10 percent of those expenses from your annual income taxes. The key to determining if you qualify for the home office deduction is that the room or space must be used exclusively for conducting business.

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