In today’s post, I’d like to share a list of some of the most common MLM Business expenses. All businesses, regardless of their industry, have business expenses.
The real beauty of our industry is the low start-up cost and the small monthly overhead. For most MLM Reps, their monthly overhead will be at most $100 to $200 per month, which includes their personal product order. When compared to a traditional business, this is a no-brainer!
Please keep in mind I am not a CPA or accountant. I am simply sharing what I know about small business taxes based upon my personal experience and via independent research. Think of this as a guide, not the law itself.
It’s your job to educate yourself on what you can and can’t legally deduct on your taxes. It would be in your best interest to consult with a licensed tax professional.
Common MLM Business Expenses
What you will see below are some of the most common MLM Business expenses. I have them sorted by category in alphabetical order.
Here are some of the most common advertising expenses.
- Newspaper ads
- Magazine ads
- Printing flyers
- PPC ads
- Solo ads
- Business cards
- Buying shares in an advertising CO-OP
- Drop cards
If you do the business the way most reps are taught, you won’t have ANY advertising expense!
Advertising is one of the largest expenses that you will incur as a multi-level marketer. Advertising can include magazine, newspaper, Internet and other ads you use to market your business to others. Make sure you keep track of all advertising expenses during the year. Keep all receipts from vendors in an envelope. That way you have easy access to them when you check them against your records.
This won’t be a big expense for most MLM Reps but do keep track of your expenses with the following things.
- Paid business coaching
These educational resources must be relevant to your MLM Business. This category of expenses will be filed as a miscellaneous expense on your Schedule C, 1040 form.
Nobody knows everything about running a business right away and, on the tax side, the advantage is that you can write off the cost of learning new things. However, this educational stuff must connect to your business or the art of running a business.
- Subject to the $25 limit per person per year. That means if you give someone, such as a customer, a $100 gift, you can only deduct $25 of it.
Everyone loves to receive gifts. Gifting token items to your best customers and preferred vendors is a great way to highlight your business’s identity and values. It reflects a level of generosity and implies that you care about individual relationships. Both customers and vendors alike recognize the significance of those two factors in creating long-standing relationships with a business. Your small act of kindness has major implications on your brand perception, the likelihood of repeat business and increased referrals.
Source: First Republic
- Electric bill
- Home insurance
- HOA fees
- Water & sewage
- Home repairs
- Pest control
Keep in mind, these expenses will be prorated based upon the percentage business use of your home.
Your home office must also meet certain standards to be eligible. To qualify for the home office deduction, you must use part of your home “regularly and exclusively” for business. Your office doesn’t need to be in a separate room, but it has to be in an area of your home where you don’t do anything else. It can be a dedicated nook in the corner of your basement, for example, but it can’t be the kitchen table where your family also eats.
Source: U.S. News
- For a business loan
- For business credit card
Make sure you don’t mix your business purchases and personal purchases on the same credit card or loan. Keep them separate.
This includes credit card interest, finance charges, and loan interest for any business liabilities. Nobody likes to pay interest…but at least you can write it off.
Licenses & Fees
- Lawyer fees
- Tax software or accountant fees
- Business license
Meals & Entertainment
- Food for a business home party event
- Take client, business partner, or prospect out for a meal.
Some meals and entertainment are subject to a 50% limit and others 100%. Educate yourself on which ones are eligible for what.
Business meals and entertainment are deductible if the expenses are ordinary and necessary to conducting business and can be proven as such. It’s a good idea to indicate on the back of all restaurant receipts what the particular business purchase was for, for which client it was made, and what business topics were discussed.
Source: Gurian CPA Firm
- Ink cartridge for printer
An item is considered an office supply if one uses it in the home office for business purposes. On the other hand, an item is considered marketing material if the one uses it for marketing products and services.
Even if the item came from the home office, the IRS considers the item as a marketing tool if used for advertising.
Common examples of office supplies for tax purposes are pens, paper, folders, clips, and staplers. Other interesting possible reportable expenses include computer software and programs.
Phone & Internet
- Business phone (prorated)
- Internet expense (prorated)
You can also deduct your business-related cell phone expenses. Similar to the internet expense, if you also use your cell phone for personal use, you can only deduct the direct business expenses (i.e., business apps) and the percentage of time the phone is used for business reasons.
Source: The balance
- Stamps to mail postcards.
- Postage to send samples.
- Postage for thank you notes.
- Postage to ship products to customers
You can deduct your travel expenses to meet with a client, attend an event, attend a business meeting, etc.
- Taxi or Uber
- Shuttle Service
If the purpose of the travel is not 100% business related, you will have to pro-rate it.
Business-related travel is deductible as long as it is short term (not indefinite travel) and required for a business. Keep all your receipts and business information related to the travel.
Source: The balance
- Repairs & Maintenance
- Interest paid on vehicle loan.
Keep your receipts and use a mileage log. At the end of the year, you can choose from a standard mileage deduction or actual expenses.
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.
Do Your Homework
This list is probably a 90-95 percent solution for most network marketers. The real key to success with the common MLM business expenses is to educate yourself. Do your homework online first, and then sit down with a CPA or bookkeeper. Ask them your questions and have them help you get organized. It’s time and money well spent.
Set up a simple receipt and filing system that works for you. And remember that every receipt you lose or misplace is like throwing money away. Get good at saving your receipts. This will help lower your tax bill legally at the end of the year.
One More Thing
It is YOUR responsibility to be able to prove the IRS that your business is a business and not a hobby. What you see below comes directly from the IRS website.
In making the distinction between a hobby or business activity, take into account all facts and circumstances with respect to the activity. A hobby activity is an activity not done for profit. This includes activities done mainly for sport, recreation, or pleasure. No one factor alone is decisive. You must generally consider these factors in determining whether an activity is a business engaged in making a profit:
- Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.
- Whether you have personal motives in carrying on the activity.
- Whether the time and effort you put into the activity indicate you intend to make it profitable.
- Whether you depend on income from the activity for your livelihood.
- Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
- Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
- Whether you were successful in making a profit in similar activities in the past.
- Whether the activity makes a profit in some years and how much profit it makes.
- Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
In conclusion, these are the most common MLM Business Expenses that I know of. What did I forget? Leave a comment below to tell me what I should have added to this list but didn’t. I look forward to hearing from you. Have a great day.