Do the words Independent Distributer mean anything to you? Have you ever heard the phrase multilevel distribution company? Probably, and it’s likely that if you’ve heard it then either you or someone you know is directly involved. These words mean that a person works for themselves selling another company’s goods and/or services; it’s a tiered approach to business, meaning that employees are usually considered self-employed, and sometimes—but not always—are licensed independent contractors. Mary Kay, Amway, and Scentsy are popular and well-known tiered distribution companies, but there are also others—essential oils have become a very trendy and often operate using Independent Distributors. In fact, it’s become so prevalent that an estimated 16.8 million Americans participate in this type of work on at least part time basis. Here’s what it means for income tax…
There’s a self-employment tax that accompanies this kind of work. It’s a percentage that gets taxed in a similar way as Medicare and Social Security. It’s based on the total amount of taxable income—that means that in addition to Federal and State Income Tax the self-employed get hit up for more money. And that’s difficult, especially when you consider the time and effort that usually accompanies the ownership of a small business, regardless how small. So, this is where deductions become extremely important to the self-employed. Do you have expenses involved in your small business? Oftentimes there’s travel involved. There’s business-related parties to host—in the case of cosmetics, it’s often common practice to invite people to receive a spa-like facial and to try different types of makeup. And you are probably going to manage your small business from your home; usually, you will operate with a computer and other office supplies. And all of these tools and supplies are likely tax deductible.
The one important thing to remember when you start your small business is to have a reliable and experienced accountant take a look at both your expenses—checking for potential write-offs (you may have a few write-offs that you don’t know about)—and also to help you navigate your income tax. If you have any questions or would like to schedule your first appointment then call Practical Taxes today.