Maximizing Deductions When Preparing Your Network Marketing TaxesThe deductions you can claim on your network marketing taxes are just one of the many benefits to starting a home-based business. Who wouldn't like to save hundreds, even thousands of dollars come tax time? Especially with the way the economy is today. 
As a network marketing business owner, many expenses you currently have can be converted into tax deductible expenses. This reduces your overall taxable income, which in turn reduces the total amount you have to pay in network marketing taxes. Putting more money in your pockets!
It's said that most Americans work until May 5th just to pay the taxes they owe for the year. How can you take advantage of the many network marketing tax deductions for your business?
Business or Hobby?The first step in claiming deductions is to determine whether your network marketing activities are considered a real business or a hobby. The IRS states, "Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit."So, are your activities in network marketing considered a business or a hobby? According to the IRS, in order to determine if you're running a business or hobby, you need to be able to answer "Yes" the following:
The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year. If your activities don't meet the above criteria then your network marketing activities are considered a hobby. Your losses from that activity can't be used to offset other income and you will need to itemize these deductions on Schedule A (Form 1040). If your activities do qualify as a legitimate business then you may be able to deduct the following on your network marketing taxes. Please consult with a tax professional for advice on maximizing your deductions and minimizing your tax burden.
Home OfficeProbably one of the best of the network marketing tax deductions is the home office. The important part here is to make sure what you consider your "home office" is exactly what the IRS calls a home office.This means you must have a space in your home that is only used for business and can't be used for anything else. If you're using the family computer at the dining room table this doesn't count as a home office since you will be using the area for meals with the family as well. Does this mean you have to have a separate room to claim the Home Office deduction on your network marketing taxes? No! This deduction isn't limited to a full room. It can be a part of a room if the area is used solely for business purposes. Measure the space you are using as your home office and divide this area by the square footage of your home. This percentage is the amount that you can claim for the home-related expenses of your network marketing business. Such as rent, mortgage, insurance, utilities, etc. For example: Let's say that your home is 1,000 sq/ft. The area used strictly for business purposes is 100 sq/ft. This means you are using 10% of your home for your network marketing business. You can now claim 10% of your rent, mortgage, insurance, electricity, water, etc. on your network marketing taxes.
Office SuppliesDon't qualify for the Home Office Tax Deduction? That's OK, because all of your office supplies including pens, paper, printer cartridges, notebooks, etc. are 100% tax deductable.Keep all receipts! You'll want to know how much you spend in office supplies for the year to offset your taxable income.
Business EquipmentWhen deducting equipment needed to run your business such as office furniture, office equipment, computers, and vehicles you have two options when claiming these on your network marketing taxes. You can claim all equipment expenses in one year or you can choose to claim them over several years.If you want to claim the entire cost of these items in one tax year, you can do so by referring to Section 179 of the IRS Tax Code. In February of 2008 the Economic Stimulus Bill increased the deductable amount from $125,000 to $250,000. The "American Recovery and Reinvestment Act" has officially extended the Section 179 Deduction increases through December 31, 2009. Section 179 is a tax code created to help businesses - By allowing businesses to deduct the full amount of the purchase price of equipment (up to certain limits), Section 179 is a fantastic incentive for businesses to purchase or lease equipment this year. I highly recommend visiting Section179.org for a more detailed explanation of this tax code. If you choose instead to depreciate your business equipment, you can't simply split the cost into equal parts over the depreciation period. Instead, you must use the IRS' MARCS Percentage Table to make separate calculations each year. Regardless of which method you choose, the point here is that you can claim these expenses when preparing your network marketing taxes on Form 4562.
Computer Software & Business SubscriptionsWith the change of Section 179 you are now able to claim all expenses of computer software and business related subscriptions in the year the cost was incurred. Previously, you were required by the IRS to depreciate the cost of computer software over three years.There was no change in the rules relating to business subscriptions, like industry-related magazines. You can continue to deduct 100% these costs in the year that you purchased them.
Vehicle MileageWe already know that you can claim the vehicle you use for business purposes on your network marketing taxes. But, you can also claim all of your business mileage as well.Keep accurate records! Here again you have two choices when preparing your taxes: You can either tally up the total mileage used for business and multiply it by $0.55 for your 2009 deduction. This rate is up from $0.50 for tax year 2008. Please don't forget to deduct your tolls and parking expenses too! Or, your second option is to divide your total business mileage by your personal mileage for the entire year. Here only the business mileage can be deducted. So, if you drove 12,000 miles for the year and 500 of those miles were for business meetings, events, etc. you can only deduct the 500 miles. Remember to include gas, repairs, and insurance. A portion of these are deductable as well.
TelephoneIf you've installed a second phone line in your home for your business or use a cell phone strictly for business calls, you can deduct 100% of the monthly phone bills and any service charges that come with running these phone lines. By having a business phone it definitely makes record keeping easier, however, you don't need to have a separate line in order to claim at least a portion of your phone bills when preparing your network marketing taxes.If you use the same phone line that the rest of the family uses, simply keep track of which calls were made for business purposes. These calls are 100% deductable, but you won't be able to claim the services charges for the phone line.
Travel & MealsDo you prefer to stay at the Ritz when traveling? Want to fly First Class? Well, when owning your own network marketing business you can. All of your business related expenses like hotel, airfare, train, bus, and taxi are 100% tax deductable as well.Did you get some marinara sauce on your blouse or slacks while enjoying your spaghetti and meatballs last night? No worries, your dry cleaning expenses are all deductable too! And so is tipping the bellboy! The one exception is meals. You can only deduct 50% of your meals when you're traveling for business or meeting with a client.
Health InsuranceIf you're building a network marketing business full time, chances are you are paying for your own health insurance. Again, your insurance premiums are 100% deductable.There are restrictions so I will elaborate a little more since health insurance is a major issue for many who are about to make the leap from part-time to full-time network marketers. In order to claim your health insurance premiums the following applies:
Retirement ContributionsHave a 401(k) or IRA account to save for retirement? All contributions you make into these retirement accounts are 100% deductable on your network marketing taxes. If you don't have a retirement account...there's no better time than now.Social SecurityIf you have been an employee of a company all of your life you may or may not know that your employer has been paying half of your Social Security contributions. If you are now a full-time network marketer you no longer have this benefit. You are now required to pay the full 15.3% of your net profits for Social Security.Don't despair! You are allowed to claim 50% (essentially the portion your former employer was paying) of your Social Security payments on your Form 1040. So it equals out anyway.
ChildrenThis deduction applies only to those who operate their network marketing business as a sole proprietor or sole partnership where you and your spouse are the only partners.Do you want to teach your children good work ethics? Help them pay for college? Teach them how to save money? Hire your children! If you pay your child less than $4,000 a year to work for your network marketing business you may be able to avoid paying income taxes on this amount. Also, if your child is younger than 17 years old you don't have to pay Social Security taxes on this income either. And you can write the salary off as a business expense.
For a complete understanding of your network marketing tax deductions please refer to the IRS' 2008 Publication 535, "Business Expenses". This publication discusses common business expenses and explains what is and is not deductible. The general rules for deducting business expenses are discussed in the opening chapter. The chapters that follow cover specific expenses and list other publications and forms you may need.
The items included in the "Network Marketing Taxes" page are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
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