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.
Advertising
Here are some of the most common advertising expenses.
- Newspaper ads
- Magazine ads
- Postcards
- Printing flyers
- Samples
- 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.
Source: Chron
Business Education
This won’t be a big expense for most MLM Reps but do keep track of your expenses with the following things.
- Books
- Courses
- Seminars
- 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.
Source: Gusto
Gifts
- 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
Home Office
- 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
Interest
- 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.
Source: Gusto
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
Office Supplies
- Pens
- Paper
- Notepads
- 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.
Source: TaxReliefCenter.Org
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
Postage
- Stamps to mail postcards.
- Postage to send samples.
- Postage for thank you notes.
- Postage to ship products to customers
Travel
You can deduct your travel expenses to meet with a client, attend an event, attend a business meeting, etc.
- Lodging
- Food
- Airfare
- 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
Vehicle
- Mileage
- Repairs & Maintenance
- Gas
- Insurance
- Tolls
- 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.
Final Thoughts
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.
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What’s really neat from your list is that most people already have MOST of these expenses prior to joining the business. Now they just have the legal option to deduct them on their taxes.
Exactly. That is what I tell people all the time. It’s so awesome being able to legally deduct a large portion of your lifestyle expenses, legally.
Well, I’m not really good at bookkeeping and never thought about all the expenses incurred in my small scale business. Thanks for highlighting why people like me, who are too busy with other responsibilities ( work, study, home) should concentrate on getting their books straight. It’s an uphill battle from there on.
Think of it this way. Every receipt you lose and every deduction you don’t keep track of is like throwing money down the drain. That is what motivates me to get organized with my receipts and business expenses.
Indeed there are many expenses included in setting up and running one’s own business. This article really helped me know more about the expenses which can be incurred in network marketing. Investing in your business is really crucial for its success. As a small business owner, I spend the most amount of money on advertising and postage. This article made me realize that even small expenses can accumulate over time and increase the overall cost. I will keep an eye on such petty expenses from next time. Also, I took up a paid marketing course before starting my business and I had no clue that it can be included in business expenses! I learned so much from this article. 🙂
I’m glad you enjoyed the article, Shruti. If someone keeps good business records, and runs their business legitimately, the tax savings alone can be substantial, compared to not having a business and not having those deductions.
I didn’t know about all of these expenses. It looks like a lot. Wouldn’t it be hard to make a profit with this much of a monthly expense?
Most of the expenses people have in our industry, they already had BEFORE starting their business. Now, they can legally deduct those expenses, such as their cell phone, home office, and vehicle. This can save people a considerable amount of money come tax time.
As a student and a small business owner, I’ve learned a lot through reading this article. It is indeed true that we have lots of expenses and finances in our everyday lives however, what helps me go through with it is being organized and being provident. Furthermore, I also never forget to invest in whatever would help me and my business to further improve. For me this isn’t really about simply splurging instead, it is about me learning something that would contribute to the success of my small business.
Regardless of what type of small business you own, there will be expenses. Our responsibility as the CEO is to evaluate each expense and be a good steward of our own money.
What I love most about MLM is that the potential rewards are 1000x the risk. You can invest such a small amount of money, initially and ongoing, and potentially build a business that generates millions of dollars. Very few opportunities offer something that good.
One of the things I’ve always loved most about the MLM industry is the low startup-fees. They make it easy for just about anyone to get going — and the best part? The costs remain low!
I’ve never really sat down and thought about the various expenses involved with an MLM business, but this article has really brought it all to the front of my mind. I’m actually pretty impressed with the number of expenses that us MLM professionals deal with while somehow still only spending a very small amount.
When you consider how much other industries shell out per year, we’ve really got it quite lucky. Some professionals spend upwards of $500 a month to keep their business going, which is something I feel incredibly blessed that I don’t have to do.
When you compare our start up and ongoing expenses to just about any other industry, it’s a joke. In most cases, your monthly expenses are just your product purchases. What’s cool about that is you get to eat those products. In many cases, you just switched stores and started shopping from yourself instead of somewhere else, so it’s really not much of an added expense after all.
There’s no making money without spending money, everyone who says otherwise doesn’t have a clue about business. All the expenses you mentioned in the article make it sound like there are so many, but actually these are pretty normal expenses and to be expected. I’m glad you were transparent about that and really showed all of us what we can expect if we get into it. There are few businesses that allow you to start with as little as a $100, so that’s a big plus in my book. What most people tend to forget is investing in yourself. Not only licenses, fees, travel expenses, but investing in your knowledge, courses, books etc. I personally think that’s the most important investment, because without prior knowledge, business waters can be very dangerous.
Investing in your own business education and personal development should be one of your top and most important business expenses. You can’t lose money when you invest in yourself. Plus, as you improve your skills, your business will improve. It’s a real win-win deal.
The reality is, if you start an online-based MLM business… most of the costs disappear.
The really hard cost is advertising. But if you know what you are doing, you can run your advertising at break-even, and let your downline efforts offset that expense.
It’s basically the holy grail of customer acquisition, acquiring customers for free!
Then when you send them packages, you can send them special promos in there, and you can even transmute a cost into profit
The single greatest cost for most businesses is acquiring new customers. If you can do that with a breakeven on the front end, or even a small loss, you can still make a killing with repeat sales. Repeat sales are where the real profit comes from in every business, not one time sales.
Every business has expenses, but few companies allow starting on a low cost and small monthly overhead. It is so great to find out that the monthly overhead of MLM is $100 to $200 per month, including personalized product orders. You mentioned tracking expenses with business education, and I couldn’t agree more. Giving token items to the best customers seems like a good approach to identify the business values as a small act of kindness has a major impact. After reading the articles, I will surely be going to perform better. Thanks for sharing the article. It was very informative.
One of the best things about our industry is the low overhead. When people complain about a $200 or $300 start up cost or a $100 to $200 per month auto-ship, I know they have very little if any entrepreneurial spirit in them. They have an employee mindset. Our start up costs are so inexpensive compared to any other business I know of.
Starting a MLM business takes less money and expenses than other business types but it still requires money. This article is a great explanation of all of the expenses you can expect and highlights expenses that you may forget about. Gifts is an expense that I have not taken in to consideration, but I do believe that after reading your article that gifts can make a customer happy and make them come back to your business. Office supplies and postage can add up quickly so I am glad you included them in your list and they are essential in any company.
This list is quite comprehensive for network marketers. Other businesses might have different expenses we don’t have. Every business is a little bit different. Yes, don’t forget about gifts. Just keep in mind there is a maximum $25 deductible for each person you give a gift to, so if it cost more than that, you can only deduct the first $25, not the entire price.
That was a great break down of expenses. I see a few things on the list I have not thought about claiming. This is another area I am not doing well at. I do not keep great records of my receipts, and other purchases for my business. I know that I need to get better at that if I am going to be successful.
Just learning how to do that can save you THOUSANDS of dollars each year. Learn what you can deduct, keep good records, and be organized. Those are really non-negotiable if you want to be a good steward of your own money and minimize your taxes legally. I’d also give a friendly reminder that every time you lose a receipt, or forget to deduct something, it’s like throwing money away. You definitely don’t want to do that.