General Tax Tips. Self-Employment Overview:

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Marion Mosley
5 years ago
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1 General Tax Tips Self-Employment Overview: As an Independent Sales Consultant with Norwex, you are a business owner. Treat your Norwex business as you would any other business. You will most likely file a Schedule C to summarize your income and expenses as a Sole Proprietor or LLC. You may file differently if you have a different type of corporation. It s best practice to set up a separate bank account for your business. Deposit all income received from customers, whether cash or check, into that account. That will give you a paper trail if you need to show the IRS what you have received for income. Set up a separate check card or credit card to use for all of your business expenses. Consider the fact that, as a self-employed business owner, there may be retirement plans available to you that will allow you to save a portion of your income and receive a tax deduction for it. Consider the fact that, as a self-employed business owner, there may be the opportunity for you to receive a deduction for health insurance premiums if you do not receive health insurance through another employer or your spouse. Consult with your tax advisor for further details. Self-Employment Examples of Items of Income and Expense: 1. Gross Receipts: Track all money coming in, whether cash or checks from customers, or a check from Norwex. Deposit cash into your bank account immediately; do not risk accidentally comingling it with personal funds. 2. Cost of Goods Sold and Inventory: Always take inventory at the beginning and end of the year. Value your inventory at your cost (60% / 65% of retail). Keep track of what inventory you have paid for and what inventory was received free as an incentive from Norwex. Consider putting small stickers on the free product. Beginning inventory + products purchased ending inventory = Cost of Goods Sold Print out your orders and your shopping spree orders from the Norwex.biz site. Inventory is product you intend to sell; not demo items or items you intend to give as hostess / consultant gifts. 3. Advertising / Marketing: Business cards, catalogs, invitations, thank you cards, Ripple Effect fee etc. 4. Car / Mileage:

2 Keep track of either: Actual Expenses pertaining to your car (lease cost, car payment, insurance, fuel, service) and the percentage of time used for business vs. personal. This may be more advantageous if you have a new vehicle. Mileage. If you have a home office, track all miles driven to and from your residence for Norwex business. This includes business meetings, deliveries, parties, trade shows, training, trips to the post office. You can take a deduction per mile driven. Keep good records. Consider writing it down in a notebook in your car, or on your calendar. Electronic records are acceptable, but handwritten is better if audited. The standard mileage rate for 2014 is 56 cents for business; the 2015 rate has not been released at the time of this being written. IRS recommendation is to have beginning and ending odometer, number of miles driven, and the reason for the trip. You must establish a home office to take mileage to and from your home; otherwise it is a commuting expense, which is nondeductible. If you don t establish a home office, business miles begin at your first business location and end at your last business location, but your home would not be either if you do not have a home office. 5. Professional Expense: Tax preparation fees, Consulting fees, Quicken / Quickbooks or other software for tracking income and expenses. 6. Office Expenses: Postage, paper, office supplies etc. 7. Travel Travel for a valid and primary business purpose (i.e. Annual conference) It must be overnight travel outside of your home base. The Twin Cities metro area would all be considered home base. Hotels, rental car, airfare. You may be able to claim 50% of actual meal cost if you are away from your home base, or you may be able to claim a per diem for meals on a daily basis. You can look up the per diem rate for major metro areas at You may be able to include expenses for your spouse only if they are involved in your business. 8. Meals and entertainment: 50% deduction for meals and entertainment, or a per diem rate if you are away from home overnight for business. If you are purchasing food for a meeting, it may be 100% deductible as a meeting expense. There must be a valid business purpose for

3 the meal (i.e. Meeting with a prospect); it cannot simply be lunch out because you are driving to a party. 9. Cell phone: You cannot deduct a home telephone line, but you may be able to deduct a portion of your cell phone cost based on the percentage of time used for business. You can estimate this, but have some way of backing up your estimation. 10. Internet: You may be able to deduct a portion of your internet expense. It must be based on a percentage of internet use. 11. Miscellaneous: Trade shows, prizes, gifts, etc. Anything that doesn t fit into one of the previous categories. Don t let this category get too big. 12. Equipment / Depreciation: Computer, printer, fax machine, etc. Can depreciate or take a Section 179 deduction. 13. Home Office Deduction: Form 8829 Business Use of Home Can deduct a portion of items such as mortgage interest, property tax, utilities. Consult with your tax advisor to see if you qualify. You must have regular and exclusive use for your business. There is a second Home Office EZ option where you may be able to claim $5/square foot with a max deduction of $1, Expo expenses Booth fees, marketing costs etc. 15. Self employed person s health insurance, if not covered through another employer. 16. Meeting expenses. Items Particular to Norwex: 1. Cash and check transactions:

4 When you receive cash or checks from customers, report it as income. Report the amount you pay Norwex for the product as cost of goods sold. 2. Credit card transactions: If you receive an overpayment check from Norwex because your customers paid with credit cards, report that check as income, and you don t have an offsetting cost of goods sold number. 3. Free product: Track what you did with the product. If you sell it, your profit is 100% of what you sold it for. If you give it away, write that down. If you use it for personal use, you may have to pay tax on the gain you received from using it (wholesale cost). If you sell free product and collect sales tax, you should remit it to the state. You can go onto the Department of Revenue in your state to apply for a tax ID. Other notes: With home businesses, the IRS is looking for under-reporting of income and overreporting of expenses. Keep good records. Be sure to be able to support everything with documentation. Take a beginning and ending inventory each year. One way I like to do it is grab a catalog and go through each page marking off how many I have of each item. Consider marking your free items with a sticker or somehow separating them from inventory you purchased. Keep in mind that you will most likely be filing a Schedule C and will be liable for Self Employment Tax on your profit. Consider saving money throughout the year for taxes. You will need to issue a 1099 for anyone that you pay more than $600 per year to assist you in your business. Be sure to keep all tax receipts for a minimum of 7 years. Keep copies of all income tax filings indefinitely. A good accountant is more than likely worth the investment. If you hire a professional tax preparer, their fees are deductible and if there are any questions later they can help you with them. If you do your taxes on your own and any questions arise later, a tax accountant will not be able to help you as a representative at that point. He can only represent you for filings he over saw or took part in. That is the professional code they have to adhere to.

5 You will receive a Form 1099 from Norwex Head Office if you meet the IRS requirement this year. This will have to be post marked no later than Jan. 31 from head office. If you have any questions about your 1099 or did not receive one, please call HO with these questions. Be Organized. This will save you time and money in the long run. Keep track of things as you go throughout the year. It becomes over whelming if we get behind. Write a sales ticket for everything. Document all returns, exchanges, all cash sales as well. If you document everything you have a paper trail to verify where everything goes. Don t rely on your memories. We have so much to keep track of and it is easy to forget. The more complete and accurate records you have the better the whole process will be for you. Please consult a Certified Public Accountant for specific questions on calculating your taxes. Here are some helpful links that you may want to reference: Chapter-3:-Examination-Techniques-for-Specific-Industries-(Direct-Sellers) Employed-Tax-Center-1 Closing-a-Business

How to Prepare Your Taxes

How to Prepare Your Taxes Along with these notes, you will also need to print a copy of the File Folder Quick Reference page, as well as the Tax Organization Labels. It would be helpful to use a 31 pocket