Calculating Taxes: Unreported Commissions & Expenses

[Mel92504]

I've just added up my commissions, being that we didn't get the 1099's yet, & so far my "expenses" are already more than my commissions...& I haven't entered mileage yet! Is this going to cause any problems?

 

[esavvymom]

No, that's not going to cause you any issues with the IRS. IRS gives you a couple of years to report "loss", before they'll consider it a "hobby" versus a real business (which I guess means we couldn't claim deductions for it anymore). I think it's 3 years?? Someone else (there are a few tax-folks) on here.

 

[Mel92504]

thanks....we do use an accountant for our taxes, but I wanted to kind of be prepared
before we get there

 

[SpiritdancerIA]

Honestly? Last year (filing 2008 taxes), I didn't claim all my expenses on our tax return, so I showed a profit. We were getting a return anyhow (based on my husband's income), so it didn't make a lot of sense to claim a big loss on my side, due to the whole business vs. hobby thing with the IRS.

The general rule of thumb is that if a "business" loses money 3 years out of 5, it's a hobby.

This year, I'll be claiming all my mileage, which should pretty well offset all my commission and then some. I can add in the other expenses (like NC, stuff from Merrill, postage, etc). Why track more this year? Unexpected "taxable income" (I negotiated a settlement with a credit card company, and what they wrote off? It gets submitted to the IRS as income )

 

[Jen1409]

You can submit a loss of up to $1500 for 3 years before its considered a hobby

 

[esavvymom]

Honestly? Last year (filing 2008 taxes), I didn't claim all my expenses on our tax return, so I showed a profit. We were getting a return anyhow (based on my husband's income), so it didn't make a lot of sense to claim a big loss on my side, due to the whole business vs. hobby thing with the IRS.

The general rule of thumb is that if a "business" loses money 3 years out of 5, it's a hobby.

This year, I'll be claiming all my mileage, which should pretty well offset all my commission and then some. I can add in the other expenses (like NC, stuff from Merrill, postage, etc). Why track more this year? Unexpected "taxable income" (I negotiated a settlement with a credit card company, and what they wrote off? It gets submitted to the IRS as income )

That's dirty!

 

[NooraK]

That's dirty!

It's tax law. Any debt that's "forgiven" is considered income. A short-sale on a house works the same way too. The difference between the sale price and what you owe is forgiven by the bank, but the IRS considers it income.

 

[esavvymom]

You can submit a loss of up to $1500 for 3 years before its considered a hobby

can you tell me where you found that information? I'm having a hard time searching the info on IRS site...but my expenses are ALOT higher than my income. Darn I spent too much and it goes so fast! OOPS!

So before I confess all of this to my husband only then to find out that I couldn't claim more than a certain dollar amount in losses, I thought I'd ask. I can wean down my list (somehow) for tax purposes. Then I won't get in AS much trouble. And yes, I'm working on increasing the income, as well as reducing expenses.

 

[msmileyface]

Just make sure you can justify the loss. It will definitely raise a red flag otherwise. Also, some advice for me.. why so many people with more expenses than commissions? I don't want to fall into that, so please advise!

 

[esavvymom]

Just make sure you can justify the loss. It will definitely raise a red flag otherwise. Also, some advice for me.. why so many people with more expenses than commissions? I don't want to fall into that, so please advise!

sometimes you have to spend money to make money- especially starting out. Supplies like catalogs and product.

For ME, last year, my shows were very few (average 2 or 3 a month for about half the year...the rest I was just getting 1 a month). But I went to National Conference, and my family went with me (so didn't share a hotel expense), I had purchased some training materials from other Direct-Sales coaches, I bought the new products (didn't earn them), and I buy the food for my shows- and that adds up.

I'm going to work on finding ways to be smart.

I think one tip, from someone who wishes i did this, and plan to start! Track your expenses MONTHLY or better, so you can see what you are spending versus what you are making! I didn't enter any expense receipts and am sitting her doing it now. So I spent money without a clue of how much I had spent all year....not cool.. That's like spending money from your checking account without ever balancing your checkbook or seeing if you have bills to pay!

Use the information not to scare you, but to prepare you to do better!

 

[mrshamel3808]

Just make sure you can justify the loss. It will definitely raise a red flag otherwise. Also, some advice for me.. why so many people with more expenses than commissions? I don't want to fall into that, so please advise!

Also, some of the money spent wasn't actually more money out of pocket. For example, mileage deducts more than just the actual cost of gas; the rate is based also on the wear and tear on the vehicle. Another example, when I purchase ingredients to practice recipes for shows, usually it serves as a meal or something that I would have had to make anyways but because it was for business I'll write it off. Or I'll have ingredients left over to use for personal use later on. I figure it balances out since I often use ingredients I already own in some of those recipes too that I can't calculate the cost to write off (like spices or flour or other staples like that). So while you might be reporting a loss (like I will), I know I actually made money because I bought big ticket items (we moved into a house from an apartment) with my PC money.