Professional Documents
Culture Documents
The information contained in this presentation is current as of the date it was presented. It should not be considered official guidance.
Sells on a deposit or commission basis or to other persons Delivers and/or distributes newspapers or shopping guide
Direct Sellers
Compensation from sales not hours worked Written contract Not treated as employees for federal tax purposes
Business Income
All income is includible unless excluded by law Commissions, bonuses and percentages Prizes, awards and gifts Value of goods or services received Value of use of property
Example 1
Customers pay the retail price for goods Company sends merchandise to fill orders Company pays a commission Acting as a sales agent for company
Example 2
Customers pay deposit with orders Send the orders to company Keep deposits Customers pay company remainder of retail price
Example 3
Customers pay you for goods Order the goods from company Send the money directly to company Buying products wholesale and selling them retail
Example 4
Goods held in inventory Order and pay for the goods before sales
Example 5
Recruit other direct sellers Commissions and or bonuses shared with direct sellers Keep portion of commissions
Gross Profit
Gross receipts minus cost of goods sold = gross profit
Capital Expenses
Going into business Business assets Improvements to business assts Demonstrators
Demonstrators
Can be either
Inventory Capital expense Business expense Personal expense
Demonstrators - Example
Customers purchase from catalog One item from catalog kept to demonstrate Sells discontinued items Keeps for personal use
Demonstrators Example
Uses products in home to show customers Personal use
Demonstrators - Example
Uses copies of products to show potential customers Keeps products for a period of time Sells at a discount
Business Expenses
Ordinary and necessary Commonly accepted in the business Helpful and appropriate Keep business expenses separate from personal expenses Deduct only business part Meet recordkeeping requirements
Travel Expense
Ordinary and necessary Overnight travel Business Both business and personal Substantiation requirements
Transportation Expense
Ordinary and necessary Business trips Does not include commuting Substantiation recordkeeping requirements
Example
Works full time Direct sales part time to co-workers Delivers items at work
Entertainment
Ordinary and necessary Tests Substantiation requirements
Factor 1
Business-like manner Separate checking account Books and records Business plan
Factor 2
Expertise Direct sellers background and education Advisors
Was advisors advice followed Was advisor successful in their own business endeavors
Factor 3
Time and effort expended carrying on the activity Time spent Personal effort Other jobs
Factor 4
Expectation assets may appreciate in value Evidence Intent
Factor 5
Success carrying on similar or dissimilar activities Successful activities Unsuccessful activities
Factor 6
The taxpayers history of income or loss with respect to the activity Has a profit ever been generated?
Factor 7
The amount of occasional profits, if any, earned
Factor 8
Financial status
Factor 9
Elements of personal pleasure or recreation
Personal vs. profit motive
Summation of Factors
All 9 factors must be taken into consideration in determining if profit motive exists