It’s surprising how many network marketers actually overpay their taxes. There are common misconceptions Network Marketers have in preparing their tax returns that can cost them hundreds–even thousands-of dollars in extra tax.
When you’re running hard building your network marketing organization, you have little time to keep up with the ever changing IRS tax code that’s thousands of pages long. Truth be told, many accountants can’t even keep up with every angle of the mammoth tax code and end up being too conservative with your MLM deductions. The more conservative they are, the more taxes you end up paying.
Myth vs. reality
Unfortunately, the mystifying nature of the tax laws generates a lot of street myth and misinformation amongst Network Marketers looking to minimize their taxes.
Here are three common misconceptions held by Multi-Level Marketing professionals about their returns:
Myth #1. The Home Office Deduction is a red flag for an audit. While there may have been some truth to this belief 15 years ago, this is no longer as true as it once was. The whole corporate landscape has changed, and with the proliferation of home offices, tax officials cannot possibly audit all the tax returns containing the Home Office Deduction. Simply make sure that the deduction you take is not unreasonably high relative to your income, and you’ll utilize this deduction legally.
Myth #2. Taking an extension on your taxes is an extension to pay taxes. Spring can be a great time to build your business, so much so that record-keeping and tax deadlines get pushed to the back burner. Or maybe you’re just light on cash–and there’s not enough to pay your April 15th tax bill. Whatever the reason, don’t think that filing for an extension will delay the deadline for paying your tax. The IRS will give you a 6 month grace period to fill out the Form 1040, but you’d better be sure your tax payment is sent in on time!
Myth #3. Part-time Network Marketing business owners cannot set up a self employed pension plan. Even if you have a full time career outside your MLM business, complete with a 401K plan, you can still set up a SEP-IRA for your MLM business. This allows you an additional write-off on your tax, plus allows savings to grow tax-deferred.
It’s surprising how many network marketers actually overpay their taxes. Avoid these 3 home business tax myths and and you’ll be on your way to lowering Uncle Sam’s tax bite.
The last word
Home Business owners should get a copy of IRS Publication 334, “Tax Guide for Small Business”, an indispensable publication for any small business.