Tax Prep Tips for Home-based Businesses

This blog is about helping people to become the healthiest versions of themselves…physically, mentally and financially. The core of what we do is help people work on themselves through exercise and nutrition because it fosters growth in many areas of their lives.

But we will never ignore the gift of our business and our team, and THAT is our focus with this article.

When I started with my network marketing business with Team Beachbody in January 2010, I made the decision that I wasn’t going to be SMALL-minded about my SMALL-business.

I was going to commit to personal growth, continually expand my vision, AND embrace the necessary challenges of that big vision. And most importantly, the FOCUS would be on SERVING first and earning second.

I took the words of Zig Ziglar to heart…“You can have everything you want in life, if you just help enough other people get what they want in life.” 🙂

I also knew that I needed to acquire some business smarts. 🙂

THANKFULLY, I had some amazing business owner mentors growing up, namely my hero and my father, Dennis Graue. He and many other successful business owners I knew had a “professional team” that they could lean on for guidance, wisdom and expertise.

Doing so also allowed THEM to spend more time doing what they were uniquely talented at…building their business!

So, one of my first decisions was to seek out information and form a professional team to help guide me. That team includes a Business Attorney, an investment professional and a tax professional.

If your network marketing business is a hobby for you, maybe that’s overkill. Maybe.

BUT….If YOU have a big vision of leading a several THOUSAND person team…of earning a 6-figure PLUS residual annual income…or for enjoying the freedom to choose how to spend EVERY day, then I encourage you to put together YOUR professional team.

It needs to be non-negotiable.

Download this checklist of milestones to work towards earning $500/week as a Team Beachbody Coach.

What I want to focus on in this blog and video are some simple processes and habits that I’ve been coached by my team to implement, with a special focus on the tax aspect of owning a home-based network marketing business.

That means a review of the yearly process I use to stay organized and measure my business throughout the year AND the tax preparation process I go through each Spring tax season.

Why should you Push Play on the video above or continue reading??

I would only encourage you to continue if you are interested in playing by and staying in compliance with the tax rules while also limiting your tax liabilities, prioritizing funding your retirement AND creating an efficient system for yourself and your tax professional.

I’m going to keep this simple and focused by answering my 2 most common questions…

How do I track and pay business-related mileage?

I bet there are many business owners that are throwing away money by not tracking their business-related mileage. THAT BEING SAID, if you pay yourself mileage or take a large automobile expense tax deduction you BEST be good with your tracking and documentation.

WHY?

Because I’ve been told by my professional team that business-related mileage payouts or deductions can be a red flag for auditors.

When you look at the current year IRS standard mileage rates, you can see that the dollar amounts can get pretty high. Bottom line, track and submit ONLY BUSINESS RELATED MILEAGE.

Some examples of legit business-related mileage would be mileage to and from a meeting with your professional team, a team member on your team, a prospective team member or customer, mileage to and from the airport on the way to your annual convention,  mileage to a local training event, etc.

I generally don’t have a lot of mileage, maybe 150-300 miles over the course of two months. What I do is print out (landscape format) and track my mileage on the downloadable printable mileage sheet below.

I keep it in my car visor, and document the miles as they occur on the day they occur. Since this form has room for two months, I track two months at a time and then write a check from my corporation to my personal checking account the month that follows.

For example, let’s say I drive 190 business-related miles in January and 57 business-related miles in February. In March I would total everything up and write one check for 247 business miles.

Using the 2016 standard mileage rate of 54 cents per mile, I’d be writing myself a check for $133.38. Lastly, I’d write the total amount paid and the check number use on that mileage tracking document I’d used for Jan-Feb and then file it in my March expense file.

Download Printable Mileage Sheet

One thing to note is that the IRS sometimes does announce a mileage rate adjustment in July of each year in the event gas/oil prices dramatically change. So, check the IRS website or ask your tax professional.

What business expenses can I deduct?

One of the cool benefits of owning a home-based network marketing business is the number of deductions you can lawfully take to offset some of your tax liability.

Why would you want to do that?? Well, would you rather pay taxes on $25,000 of taxable income or $15,000 of taxable income?

The lower amount, right? 🙂

Let’s say you receive a 1099 in January from the company you represent that states you earned $25,000 in the previous year. If you deduct zero legitimate business-related expenses, you will pay tax on that full amount.

But, if you took the time to track and deduct $10,000 worth of legitimate business-related expenses you would then only be responsible for paying taxes on the $15,000 of income.

Now, there are many factors to consider that contribute to those numbers, but that example and generalization does a fair job of explaining in basic terms why you want to track and tell your tax professional of any business expenses you have.

I think the easiest thing to do would be to share some examples of business expenses you may have that you can share with your tax professional.

Computer and Internet expenses – Claim the percentage of your bill that you believe is business-related internet use. If you estimate 60% of your internet use is business-related and your monthly bill is $106.30, you would deduct a computer and internet expense of $63.78 ($106.30 * 0.60) for that month.
Multiply that amount times 12 months and the total deduction is over $765…assuming your bill and the percentage use is the same. That’s not chump change.

 

Telephone expense – Very similar to the internet expense example above…determine how much of your phone, text message and data use is business-related and deduct that percentage from your bill.

 

Meals and Entertainment – Some examples are meals out with a prospective team member, a current team member, hosting a team recognition event, etc. These expenses are NOT 100% tax deductible…but 50%. So if you have a team party that costs you $944, the amount your tax professional  would advise you are able to deduct is $472.

 

Charitable Contributions – Make sure to document any cash and non-cash donations you pay for through your business.

 

Rent Expense – Do you host live events that require you to rent space at a local hotel or church? If so you can deduct them.

 

Contractual Services – Do you use services like Upwork.com, Fiverr.com or virtualstafffinder.com to contract freelancers or virtual assistants? These services are great for outsourcing work to skilled short-term contractors or long-term local or international virtual assistants.

 

Supplies – What products do you keep on hand or use to gain a better understanding and perspective on so you can better serve your customers and team? When a new Beachbody fitness program or nutritional product comes out I purchase it, use it and write about it, so I deduct it.

 

Dues and Subscriptions – Do you use services like Cloak.com, Buffer, Pic Monkey, Dropbox or have ongoing Business Center Fees from your company? Ours is literally a 50 cents a day business… How amazing is THAT!

 

Travel Expense – Wanna getaway? Make sure to document your hotel expense, Uber or cab fees, airline tickets and baggage expenses, just to name a few.

 

Insurance Expense – Do you pay for your family or any employees health care, or maybe make Health Savings Account Contributions? Bingo…:)

 

Team Incentives – Do you run contests or incentive programs for your team with awards or other gifts? Do you purchase gifts for your team members? Maybe send the occasional book to your leaders? We do.
Those would be things to deduct, but don’t forget if you are awarding someone over $600 in value you will need to 1099 them. Well, that’s how our S-Corporation works.

 

Automobile expense – From above…any mileage payouts.

 

Continuing Education – Are you keeping track of those books you’re buying at Barnes and Noble or on Amazon.com to increase your skills? What about that online course or live seminar?

Pension Contribution – This would be one to talk to your tax professional about…but know this: you have a great business that you can use to help substantially fund your retirement…and you should start at even $100 a month (or less).
Maybe you can fund your own company 401(k) or SEP IRA. Figure out what is best for you…there are PROs and CONs to both, but we went for the SEP due to lower costs and more flexibility.

 

Postage – Are you mailing out samples, hand written cards or media mail (books, CDs) to your team?

 

Office Expense –  a new iPad, iPhone or MacBook pro, Paper clips, staples, mailers, pens, white boards, printer paper…these add up!

 

Professional Fees – Do you have an attorney, financial adviser or tax professional?

 

Advertising and Promotion – do you have wear and share clothing? Do you use an email marketing service to help share your story?
Do you know how amazing it is to write yourself a bonus? 🙂 You should do that! Click To Tweet
Interest Expense – It’s not very likely, but did you take out a loan or are you paying some credit card interest?

 

License and Permits – Are you a corporation or LLC that has annual fees? Probably a great question to ask your professional team, especially once your annual income exceeds your annual expenses by around $20,000.
If that is the case and particularly if you are a 6-figure earner you need to have the convo with your professional team (like YESTERDAY!!) about incorporating or forming an LLC… unless you enjoy throwing money away in self employment taxes.

 

Shareholder Distributions and Officer Compensation – This would apply to those that have incorporated or formed an LLC. What we do is take a fair and reasonable salary as compensation from our corporation and then take bonuses and shareholder distributions throughout the year.
Do you know how amazing it is to write yourself a bonus? 🙂 You should do that!

 


Conclusion

We hope you’ve found this useful and are committed to taking action to reduce your tax liability.

Those are the two most common questions I get, along with the info I presented in the video about how to stay organized throughout the year. I DO HAVE A QUESTION FOR YOU THOUGH…

Can you share below in the comment section what you consider the top 3 questions you have about taxes and your home-based network marketing business??

That would be so appreciated!!

Download this checklist of milestones to work towards earning $500/week as a Team Beachbody Coach.

P.S. Maybe you’ve found this article in looking for a home-based business, or maybe you’re even looking to escape a traditional business or job. If so, please tell us about you and your goals, but know in advance that our culture is one of working on your self, through reading exercise and being a part of our community.

The goal of our team is NOT to sell stuff…there are many other opportunities you would be able to find to do that.

If you’re curious about how you could embrace our culture and work towards earning a $500 a week income this resource should help you out.


 

Disclaimer: I’m not a tax professional or tax attorney. I didn’t even stay at a Holiday Inn Express last night. But I’ve come to learn A LOT by working with a great professional team AND learning on my own. What I primarily recommend you do is use this blog and video to generate some questions to bring to your tax professional and create a system to keep you organized for more simple, efficient tax prep for you and your business.

 

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