There are so many forms of self-employment – but whether you’re in network marketing, direct selling, multi-level marketing (MLM), an independant contractor or own an LLC – tax season can feel like a daunting time. While there is freedom and flexibility in self-employment, there is also the sole responsibility of paying taxes. According to the IRS, self-employed individuals are typically required to file an annual return and pay estimated taxes quarterly—this includes income tax as well as self-employment tax.

What is the self-employment tax?

If you were to work for someone else’s company, big or small, your paycheck would include your earnings and then several lines of taxes that are being withheld automatically. These include Medicare and Social Security taxes which are required by law for anyone who is earning income. As a result, although individuals who are paid as independent contractors do not have an employer withholding these taxes from their paycheck, they will be subject to what is called the self-employment tax to make up for these taxes.

The self-employment tax is about 15.3% of your earnings. Now, if you’re going back and looking at your old pay stubs, you might add up Medicare and Social Security lines and realize that they only equate to 7.65% of your income. So why are self-employed individuals being charged so much more? The reason is that your employer was covering the other half. As a self-employed individual, you play the role of both the employer and the employee (a great thing in so many other ways), and therefore must pay both halves of these taxes.

Because taxes aren’t withheld from your monthly pay, you’ll need to plan and save to pay for the self-employment tax when April rolls around. There are many variables that impact how much you’ll need to pay, so using a self employment tax calculator is a good starting point to understand your anticipated tax liability.

What frequency is best when paying taxes?

Some individuals may choose to owe taxes at the end of the year. The benefits include minimizing the amount paid to the government throughout the year, and having more cash on hand to grow in an interest-accruing account. Still, for individuals that owe taxes, anticipated or not, the responsibility can feel even greater.

The team at Robinson Burnett and Associates can help with tax planning and tax preparation services to determine the right strategy for you and your business.

As an independent contractor, filing your annual taxes may be overwhelming and confusing. What business activities are considered tax deductions? What is considered a deduction? Oftentimes, Multi-Level Marketing (MLM) professionals look for tax preparation services to ensure they are working with a professional that minimizes their MLM taxes. In hopes of eliminating confusion, we’ve compiled a list of the 5 best tax deductions for MLMs to utilize with their tax planning.

Vehicle Expense

It’s true, if your car is used for your MLM business, your miles can be a tax deduction expense. There are two methods to deduct car expenses, (1) using mileage allowance and (2) using actual costs/receipts. The majority of independent contractors use the standard mileage rate to deduct their car expenses from their taxes, method one from above. According to the IRS, the 2017 standard mileage rate for the cost of operating your car for business use is 53.5 cents per mile. If this method is used, you cannot deduct your actual car expenses, including: depreciation, maintenance and repairs, gas, oil, insurance, or vehicle registration fees.  If you drive your car for both personal and business, it is recommended that you utilize a mileage log to track the actual mileage used for business versus personal. Vehicle expense tax deductions are tricky, so it’s best to work with a tax professional. Request an appointment with us today.

 

Meals Per Diem

When traveling for business (for example, to an annual conference), 50% of meal expenses can be included as tax deductions. To simplify the process, the General Services Administration (GSA) sets standard Per Diem rates based on location of travel. If you use the Per Diem method, you don’t have to keep receipts, making tracking meal expenses simple and easy!

Finding out Per Diem rates is easy, simply visit this GSA web page, enter the State of travel, and click “Find Rates.” GSA will pull up a table similar to the one below. Per diem rates for meals is found in the last column “ME&I”

Robinson Burnett Tax Consultants has created a Tax Savings Workbook, a simple spreadsheet that easily tracks Per Diem and other deductible expenses for MLM professionals. Contact us today to get yours for free!

Home Office Deduction

According to the IRS’s Home Office Deduction for small businesses and self-employed when part of your home is used for business, it may be deducted as an expense if it meets the following two requirements:

• Regular and Exclusive Use: the designated area in your home must be utilized exclusively for your business and on a regular basis.
• Principal Place of your Business: Your home office must be your main place where you conduct business. Business can still be conducted outside of your home, as long as your home office is used substantially and regularly.

Generally, home office deductions are based on the percentage of your home that is devoted to business use. For example, if a spare room, which makes up 10% of your home, has been designated as your office, you may deduct 10% of your home expenses (utilities, gas, water, sewer, etc.) from your taxes.

Office Equipment

Computers, phones, camera equipment, laptops, and other office equipment can be depreciated as a tax deduction expense when used for your company. These items are generally depreciated over a few years. Be sure to work with your tax professional to get the most of office equipment tax deductions.

Contract labor

Often times, network marketing requires you to hire Independent Contractors to run your business.  This could be a photographer who takes pictures for your website or a freelance writer who posts and runs your blog. Contract labor is a tax deduction expense, and has other special requirements. The IRS requires any MLM professional to fill out and submit a 1099-MISC form for any outside contract work that an individual provides. A 1099-MISC form is only required if you pay an outside independent contractor $600 or more during the year. It’s important to note that your employees do not fall into this category.

 

The best thing you can do for your MLM taxes is work with a tax professional. Request an appointment with Robinson Burnett Tax Consultants today to get started.

 

Did you know? We’ve designed a spreadsheet specifically for MLM taxes and tax planning. The Tax Savings Workbook easily tracks your Income, Business Expenses, Travel Expenses, Car Expenses, and Personal Expenses. Contact us today to get your free copy!