What to do at tax time when selling through house parties
Many people who sell products through house parties do so for the discount they get when they buy their own items. Others are very serious about becoming one of the company’s best sales representatives. How you view yourself matters at tax time, because his business goals determine how you should treat that income and any money spent on those sales on your tax return.
Whether your goal is simply to buy discounted items, help out a friend by throwing a party or two, throw a party just because your friend needs to hire a new sales rep this week, or participate just for the fun of it. and the social aspects of selling a particular product, you must report all sales representative income as miscellaneous income on your personal tax return. According to IRS rules, you are engaged in a hobby that produces occasional income.
When your goal is not just to make a few sales, but to build a long-term business, enroll new hostesses so you can build your sales force, and establish a realistic business plan to achieve your goals, you can report your income on the form Schedule C tax for small businesses. Because you act for profit, according to the current tax code, your sales efforts are considered a commercial operation. A business owner can write off expenses that exceed business income.
The IRS has house party sales representatives grouped with other part-time occupations that are normally carried out as a hobby. This is why those who are operating as a business are prone to tax audits. But, that’s never a problem when you keep good records. A hobby audit is usually dismissed once you produce a solid business plan, well-organized financial records, and documentation of changes implemented to increase your profits.
A sales representative using the Schedule C tax form can write off all normal business expenses; when you dedicate yourself to a hobby you cannot deduct more expenses than the income that your hobby produces. Both are required to report inventory costs under IRS law, deducting only items sold, carrying unsold inventory expenses into the following year.
Operating in a profit-oriented manner will not only increase your sales, but it will also allow you to grow your business with pre-tax dollars. A self-employed sales representative can take advantage of the same tax laws that large business owners use to purchase equipment, home office furniture, computers for business use, to further their business education, and much, much more. .
Understanding what the IRS expects of an independent sales representative is an important part of running a successful small business. And you will pay less tax.