Tax time comes every year. Every year I seem surprised that I have to get my taxes in order. I work as an independent contractor. One of the best parts of being an independent contractor is the ability to write off the cost of running my small business. If you are just getting started, the key element is record keeping. Keep track of what you spend with receipts and what you do to build your business.
One of the best sources on what you can deduct comes from the IRS website. You can deduct a home office or office rental space, business use of your car, cost of your phone, advertising costs, equipment needed to run your business such as a computer, and product costs. You can run your business at a loss for 3 years. This loss can be made up by getting back money from the taxes you pay from a W-2 employment.
One thing that many direct sellers do not realize is deductible is gift giving. You can give gifts up to $25 per person, per year. If you give a gift that is worth more than 25, you can still deduct $25 of the cost of the gift. At this time of gift giving, if you decide to give product to family or friends, keep track of those gifts.
Another great resource for tax information for distributors is The Direct Selling Organization. The DSA has a link to an IRS publication on how to avoid tax avoidance scams.
Other tips can be found on the IRS home business guide. The IRS site has simplified top tips and more in depth information. For example, the 54 page guide for home business provides good information in a relatively easy to read format. My favorite section is the deductions—that starts on page 31.
I can’t avoid paying taxes. However, I can be smart about reducing my tax burden by keeping good records of what I spend on my business.