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Pampered Chef: Bookings Tax Time Tip

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  1. pampered1224

    pampered1224 Legacy Member Silver Member

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    I just found out something rather interesting when I had my taxes done.
    A word of warning for those of you who do give away free stuff.
    If you give away a $30.00 product or discount, you can only claim $25.00 of it as a "Consultant Gift". I figured this then, claim the $25.00 under the "Consulant Gift" heading in the Income & Expense heading then claim the additional $5.00 under show expenses. WRONG!!!! If you were to ever get audited, this will cause a problem. It is NOT a legitamit expense then because you can not prove it as something it is not. If you exceed the $25.00, you have to "eat" that cost. So don't do it. Keep ALL discounts and gifts, whether they be to a host or guest, to under $25.00.
    Something else I learned is that if you own a business like ours and you continuely show a loss year after year for about three to 4 years, you increase the possibility of getting audited from 0% to 75% or 80%. The IRS feels that if you are in business and do not carry an inventory or personell expenses, you should be able to start showing a profit within 3 years. Start up costs should be done. So do not get carried away with expenses if you are not doing much business. As a "hobbiest" for the first 4 years, I am in that 80% possible audit range as I have yet to show a profit. My tax guy said this is not good. So he suggessted simply not buying anything "new and great" to help my business for a year or two and to try very hard to show a profit this year and next. This will break the cycle of loss and the IRS should not put a flag on my account. So, keep an eye on those reciepts and do not get carried away with practice recipes and other things that could get you in very hot water. Remember too though that if you do keep your records straight, the only thing an audit should cost you is time.
    Here is a guideline that my tax guy gave me as far as certain expenses go.
    1) Electronics: You should figure any large electronic device such as a computer, computer component meaning printer or monitor, laptops, or laminators should last approximately three to 6 years. A computer of any type is usually depreciated over 5 years.
    2) Recipe testing expenses for shows, should not exceed 2 testing recipes per show. (Concidered training expenses.) (Training does not just mean conference or leadership.) You can try out 7 recipes you may use for shows per week but check the number of shows you do and only record 2 of those receipts per show. In other words, you could test recipes 365 days a year. If you do 100 shows in that year, only record 200 of those as training expenses. This is majorly excessive too though so two per month is more the ideal.
    3) Meals expenses. If you are out of town for a meeting, three meals per day are the norm. (Yes, you can record the cafe latte from Starbucks!!) If you travel for a show, one meal should be recorded if you do stop for a bite. (I like to make sure I have had something to eat before a show so I am not tempted to lick my fingers during a show!) Ew, I am kidding but that is a help strangely enough. It gives you energy to get through a show as well as helping curb any bad habbits we do have at home from showing up while cooking at someone else's home, licking figures, scrapers or tasting. And get this! People who do "food" orientated demos for aliving, should NOT be hungry when doing that demo. If you are, the tendancy then is to concentrate on the recipe before us instead of what we are selling.
    4) Training expenses themselves, and I never though of this one. I know someone who owns their own business who recorded their travel and hotel and materials purchased as one training expense from a conference they attended. Do not do this. Different catagories are needed here as the IRS deduction percentages can be different per deduction type. Travel if by car should always be done in miles. This will cost you money if you put it in as a training cost. Tolls count and train travel is a seperate heading on your taxes. This again means it probably has a different deduction rate. Hotel rates too I think my guy said are deducted at a slightly higher rate than the books you might buy at conference. And meals too are deducted at a different rate as well. So do not be lazy, seperate all the expenses from conference, you'll get more bang for the buck. And remember too if you are like me, record the $3.95 cookbooks at the checkout as training expenses, but only if you actually use them for a show or two.

    Just do keep in mind though, if you do not actually use something you purchased for your business, do not record it.
    If you can, get an expense book from the people who did your taxes or make a list of the expenses that appear on your prepared taxes from the listing for the 1099 deductions. Add these to the list provided in Pampered Partner so they are all there. This will show you all the catagories you can decuct under as a business owner.
    And by all means, do not over spend. The IRS does not like it when we show losses for too long and they really don't like it when they feel they did not get enough of our money! (But I degress to politcal there.) And with that I close.
     
    Last edited: Apr 11, 2005
    Apr 11, 2005
    #1
  2. PamperedGinger

    PamperedGinger Advanced Member

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    Thanks for the tax tips. It was very informative and helpful. I just finished my taxes last night. I will go through and make sure I've got it right tonight.
     
  3. pampered1224

    pampered1224 Legacy Member Silver Member

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    It is just too hard!

    I do know this, it is very difficult to do ones own taxes. Basically because the rules are constantly changing. It cost me $240.00 to have my taxes done with only about $68.00 of that being deductable. There must be a better way!!??? I am going to start checking around to see if someone else can do it a much more reasonable cost. However, there is something else I am going to do. somewhere around the first part of July, my tax guy suggested going to the IRS directly to see about the new 2005 rules. You know the straight from the horses mouth thing! This will help me along the way as I can possibly make better decisions about my spending for my business.
    Check back in a few months! If I find anything else that could possibly save us all some money, I will certainly pass it on!!!
     
    Apr 12, 2005
    #3
  4. ladybug

    ladybug Member

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    Suggestion

    I have done my own taxes for my family for 3 years now using Turbo Tax online. I love it and find it very easy to use.
    I have not had my own business before, so I don't know if that makes it more difficult, but I do have alot of deductions with the house & kids and Turbo Tax works well, is affordable, quick and I get good refunds back.
     
    Apr 13, 2005
    #4
  5. PamperedGinger

    PamperedGinger Advanced Member

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    Turbo Tax is wonderful. Someone posted (don't know if it was this board or not) that you can download a tax program for free at the govt. site. I went to look and they are there.
     
  6. pampered1224

    pampered1224 Legacy Member Silver Member

    3,791
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    Thanks

    At $240 anything else might be worth a shot. Thanks for the info on Turbo Tax. And the tax site. I will check out both.
     
    Apr 13, 2005
    #6
  7. kitchenqueen

    kitchenqueen Member

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    Thanks for all the great tips on tax time...especially for us newbies at this!! Keep us posted on what you find out Pampered1224!
     
    Apr 13, 2005
    #7
  8. Mystik

    Mystik Member

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    I'm sure these tips will be useful when my husband does our taxes in the next couple days. Thanks. :)
     
    Jan 25, 2006
    #8
  9. rayday

    rayday Member

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    I have been keeping track of everything in PP but I was just wondering if there was something that the PC actually sent us regarding our commissions?
     
    Jan 25, 2006
    #9
  10. Happy Mom

    Happy Mom Member

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    You can go to the IRS website and download or read about small businesses; they even have a section on demonstrators like us consultants. Their site is rather cumbersome though. If you want the IRS booklets, they are available at SS offices and large PO centers. Also, the 1040 book gives you lots of examples of what is deductible.

    $240-275 is typical cost for individual taxes here. Turbo tax is great, but we use an accountant because my husband works in another state. Last year there were 30 pages of "redundant" pages required by two states to file the state income taxes.

    My best advice to anyone claiming business expenses is to be honest, document mileage, and keep receipts. Having a separate journal or notebook just for business expenses helps, or you can buy small expense books for $1.00 at an office supply store. You can use Map Quest to get the exact mileage for each business related car trip if you forget to set the mileage counter in your car.
     
    Jan 25, 2006
    #10
  11. fruit76loop

    fruit76loop Veteran Member Gold Member

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    Gifts vs. incentives

    My accountant explained to me that there is a big difference between gifts and incentives. If you are offering a host/consultant/customer an incentive (say to get $300 more in orders get a free stone from me or sign 2 new consultants get $50 in PC Dollars or to bring an outside order get free shipping), then you can write the entire amount off. However, if you are buying gifts for your downline or you give a gift at a fair, these are maxed at $25.

    You will want to make sure and keep track of these two things seperately!!

    I have added Consultant Incentive to the list of expenses in PP.
     
    Jan 25, 2006
    #11
  12. Mystik

    Mystik Member

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    Do we file our business expenses on a Schedule C, or is there a different form to use?
     
    Jan 27, 2006
    #12
  13. ddcook

    ddcook Member

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    tax and shipping

    This might be a obvious, but I honestly don't know. When I list expenses, such as supply orders, office supplies or groceries used to practice a recipe, do we use the gross amount or net? That is, can we include the local sales tax, and shipping and handling (ie: for PC items) in the amount we deduct, or just the price of the item?

    Thank you in advance,

    Darcy
     
    Jan 27, 2006
    #13
  14. sheilanyc

    sheilanyc Novice Member

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    Gift/Incentive

    Is that $25 a year / month or quarter? So the little things like zester, peeler etc would a gift or incentive? I'm new to the biz and am confused. :confused:
     
    Jan 28, 2006
    #14
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