Tax Planning for Networkers - Part One
By Jeffrey Babener, © 2013
If you take your network marketing business seriously, you may qualify for some serious tax advantages that are
available to business owners, and in particular, home-based business owners.
That’s the good news. The bad news is that the tax deductions that you may be able to take are shrouded in
volumes and volumes of IRS codes, regulations and interpretations that could (and in fact does) keep a small army
of tax lawyers and accountants busy for years.
Even though these deductions are often confusing and unclear, it is better to have an understanding of them and
take advantage of them than to pay more taxes than you need to year after year. With that in mind, here is Part
One of a sampler of some significant tax points to be aware of, and take up with your CPA or qualified tax advisor
No Hobby Losses, Please!
Remember to be able to take advantage of tax deductions for your network marketing business, it has to be a real
business. The IRS says that you can’t deduct business expenses unless you engage in the business on a "for
profit" basis - not just as a "hobby business."
How do you tell the difference? The IRS will look at one of two tests. The first objective test is whether you have
made a profit in three out of five years. The second subjective test is whether or not you are prepared to
demonstrate that you engage in your business in order to make a profit. Here, the IRS is looking at whether or not
you carry on the business in a businesslike manner; the time and effort you put into the activity; whether you
depend on income from it; your expertise in the business; how much profit the activity makes in the years it does
profit; and other pertinent considerations.
Meals and Entertainment
Network marketing is a social business. You have to eat and you may as well have some fun and do it while you
are recruiting or selling. This is one of those expenses the IRS keeps whittling away at, however. Your deductions
are now limited to 50 percent of your meal and entertainment costs.
Beyond that, you must have records to substantiate your meal and entertainment deduction claims. In addition to
the usual receipts you should keep for expense deductions, you will need to be able to document the substance of
the business discussion, the business relationship, and who you had a meal with, or went with to be entertained.
The business discussion has to be during the activity or immediately preceding or following it.
The Home Office Deduction
You can deduct the costs associated with your home office, but be prepare to show how you use it.
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