don't forget to tell us your tips on how you organize and prepare for tax season!

Don't forget to tell us your tips on how you organize and prepare for tax season!

Tax season is right around the corner for direct sellers. Are you prepared?

Consultants, have you kept track of your IRS tax deductions? Did you know that you can deduct such expenditures as meals, entertainment, home office space, and business and travel expenses on your taxes (within reason)?

Network marketing executives, do you know why MLM companies are not excluded from paying sales taxes? What is your approach to collecting sales tax?

The IRS offers a significant amount of advice for direct sellers when it comes to taxes. The IRS defines “direct sellers,” outlines their potential income sources and common expenses, as well as provides many tax tips for those who may need to refresh their memories for the 2013 tax season.

MLM expert attorney, Jeff Babener, discusses the issues of taxes in network marketing in his video: What are the Central Tax Issues for MLM?

Lastly, visit the mlmattorney.com tax page for links to the necessary publications/forms, the IRS withholding calculator, and many other small business resources. And, don’t forget to tell us your tips on how you organize and prepare for tax season!

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From a legal standpoint, you are an independent contractor because the company does not tell you when, where, and how to perform your tasks. If it did, you would be an employee. Adopting guidelines on ethical issues, consumer legal safeguards, and general rules for fair competition among distributors does not negate independent contractor status. Independent contractor status generally means that individuals are liable for their own income taxes, unemployment insurance, worker’s compensation, etc. In 1982, the federal government specially recognized independent contractor status of direct sellers, and many states have followed suit with specific legislation.

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People often ask about MLM/direct selling’s history with the government. It’s a long history. At times it’s been bad, and then it has been good. Then it has been bad. Then good. It’s been somewhat reciprocal. Multilevel marketing, and the industry, basically began in the 1950s with Mary Kay, Shaklee and Amway. Imposters came along in the 1960s, operating pyramid schemes, namely the Dare To Be Great program in which people were recruited to get people to seminars where they would pay large sums of money. In turn those people would recruit others and get them to pay money. This caused the Federal Trade Commission (FTC) to take a look at our industry.

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Giant corporations have marketed some of their own products and services through network marketing. For many corporations who observed some of the earlier successes of this alternative channel of distribution, a number of conclusions were reached.

1.   It was a great way to introduce brand new products.

2.   It seemed to work well for products that needed demonstration or testimonial.

3.   It was a great way to reward the consumer for sharing excitement about products.

4.   This method could result in rapid penetration of the market.

5.   In that commissions were only paid on the movement of product, and massive and costly advertising campaigns could be avoided, it seemed efficient and economical.

6. In recent years, corporations expanded offerings far beyond home and personal care products to offer consumer services such as telecommunications, prepaid legal representation, financial products and consumer member benefits packages that offer customers significant savings across the board.

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Picture this – one sales call from you triggers sales presentations to 10,000 customers. Can it happen? Yes. How?

Network marketers should not overlook a golden opportunity to promote sales through nonprofit or charitable organizations. The distributor makes money and so does the organization.

The network marketing industry has become attracted to nonprofit organizations (NPO), their members and friends as a vast potential source of distributors. Handled correctly, the benefits of a networker’s involvement with an NPO are mutual and substantial. The tax-exempt organization receives a source of funds that are necessary to carry out its functions and to support the causes that are deemed worthy enough for tax-exempt status. The network marketing company gains access to a potentially large and motivated customer base.

In recent years, nonprofit organizations have played a growing role in network marketing sales. Overnight, the membership of a charitable organization may become an instant sales organization of hundreds of thousands. The charitable organization raises these funds for worthy causes and a network marketing company finds a new market for its products, all in all, a very sound match.

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So, What Attracts People to Network Marketing?

Although network marketing isn’t for everybody, millions of people from all walks of life consider it to be the right opportunity at the right time. The fact is, becoming an independent distributor can fill important needs and fit within the time and money limitations that many people face.

Virtually No Investment Required

Most companies require only the purchase of a modestly-priced sales kit ($25 to $100) to get started, which is much more economical than starting a traditional home business, which could cost hundreds of thousands of dollars.

The Chance to Own a Business

Because network marketing can easily be done part-time, and worked around a full-time job, it gives people who work for someone else the chance to own their own businesses and experience the world of entrepreneurship. In this world, they are rewarded for risk-taking, and have control over their working environments.

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Picture this – one sales call from you triggers sales presentations to 10,000 customers.  Can it happen? Yes. But how?

Network marketers should not overlook a golden opportunity to promote sales through nonprofit or charitable organizations. The distributor makes money and so does the organization.

The network marketing industry has become attracted to nonprofit organizations (NPO), their members and friends as a vast potential source of distributors. Handled correctly, the benefits of a networker’s involvement with an NPO are mutual and substantial. The tax-exempt organization receives a source of funds that are necessary to carry out its functions and to support the causes that are deemed worthy enough for tax-exempt status. The network marketing company gains access to a potentially large and motivated customer base.

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(Read Part One of this post here.) One leading business journal lists seven more red flags the IRS focuses on when looking to audit taxpayers:

1) Comparative size of deductions to each other. An item that is large in proportion to other deductions will draw more scrutiny.

2) Absolute size. A huge deduction, regardless of the accompanying deductions or the income shown on the return, will draw more scrutiny.

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