Tuesday, March 4, 2008

Expenses and tax write-offs

Disclaimer: The following is for general discussion. If you have specific questions about your tax write-offs or legal issues, please consult your tax preparer or attorney.

One of the things you may hear from the anti-MKers is that the commission checks for Directors are "misleading" because that is what they are paid "before expenses."

Employee checks are "before expenses" as well, aren't they? I mean, the employee has to pay for gas, food, clothing, pantyhose (if female) and a whole lot of other things from that check. However, if someone asks "How much are you paid?" the employee would never say, "$45,000 - but that is before expenses." Of course not.

Anti-MKers say that when figuring your average hourly commission you should take your travel time into account. I don't. I have never been paid for my travel time to and from work. It is just assumed that you have to drive in order to get to work - your commute is your problem.

HOWEVER, you can (generally) write off your mileage as an independent contractor (for business-related travel).

Let's look at some comparisons between employee vs. independent business person. But first, let's look at some qualifications for tax breaks. You must:
  1. Operate a legitimate business, not a hobby.
  2. Demonstrate that you have an intent to make a profit.
  3. Work your business like any other real business (not just on your lunch hour or the golf course)
  4. Show regular and consistent activity. (For example, one hour a day, 4-5 days per week. This is why MKers are encouraged to block out "Mary Kay time" each week to consistently work their business.)
  5. Be able to demonstrate your expertise in your business category OR your efforts to gain expertise by learning from others.
  6. Document your business income, expenses AND ACTIVITY. (Notes in your daily calendar usually are sufficient.)
Write-offs are not automatic, and each person is unique. Be sure to consult with your attorney or tax professional (not your Uncle Bobby John) to discuss your tax situation.

Now let's look at your expenses.

Employee (generally cannot write off these expenses):
  1. Gas/wear and tear on car/mileage
  2. Car insurance
  3. Rent/Mortgage
  4. Travel
  5. Meals
  6. Car payment/Lease

Independent Contractor (can write off these expenses if qualifications are met):

  1. Mileage
  2. Car insurance
  3. A portion of rent/mortgage
  4. Travel (if business-related or if business is done during the trip)
  5. Meals (again, if business is conducted)
  6. A portion of the car payment/lease
  7. And more

Businesses write off every single penny they (legally) can so that their tax liability is as low as (legally) possible. Why? So they pay less taxes (legally)! You WANT your taxable income to be as low as possible (legally) so your tax liability is lower!

So if I travel 100 miles round trip for a SCC, I can write off whatever the IRS says I can per mile (let's say 50 cents). So in this example, I have 100 x .50 = $50 in a tax writeoff for mileage!

Did I pay $50 in gas for the trip? No. The IRS mileage takes into account gas, wear and tear on the car, etc.

So can you see how putting miles on your car can quickly reduce your taxable income? And that is just one example. I can't do that just for driving back and forth to work.

Directors do have expenses. IBC's have expenses. The great thing about it is that these expenses are tax deductible!

Employees have expenses, too. They just don't usually get to write them off.


  1. yes this is so true. I am finally getting serious about keeping up with my business expenses and I intend to use them for next years taxes. Especially the mileage!

  2. Mileage is one deduction that REALLY can add up!

  3. At the PH workshop, she said for every mile you miss (in keeping up with) you throw away almost $ 0.50 and that was for 2007, that it was going up in 2008.

    So, for incentive, every mile would be work about $0.60 or so, in 2008! That little reminder sure works to help me set the trip mileage!

  4. At the PH workshop, she said for every mile you miss (in keeping up with) you throw away almost $ 0.50 and that was for 2007, that it was going up in 2008.

    So, for incentive, every mile would be work about $0.60 or so, in 2008! That little reminder sure works to help me set the trip mileage!

  5. It's not the regular business expenses that anti MKers are talking about. Any person with an average IQ knows that there will be business expenses. But they are talking about the ones primarily for MK that you don't hear about until you join. Seminars, conferences, leadership, weekly meetings, breakfasts, newsletters, etc. And those pesky chargebacks. When they are courting you they tell you all about the free training, then you get slammed for the room costs and are then asked to bring food on top of that. That is what is misleading. If all info were disclosed upfront I don't think anyone would be complaining.

    Another thing that is misleading is the amount of time actually working and what they tell you. Not driving time. Of course you will have to drive at some point. But it takes more than 2 hours to do a SCC. You have to load your car, set up, wait for the late comers, talk to each person individually, pack everything back up, clean up the trays, make plans to deliver what you didn't have, etc. And that doesn't include the time it took to actually get someone to book. That takes time. We've all heard about full time pay for part time hours. It was preached to me before I signed up. Since so few actually make it in MK - look at the numbers corporate shares - there should be a disclaimer. Something to the affect "Results not typical."

    And when that director is flashing that large check she had laminated to show potential recruits I think she should disclose how often she makes that amount. Is it consistant? Or was that a one time deal, or something that happened months or years ago?

    I know there are probably some in MK who are making an income to rival that of a regular job, but are those the norm or is it rare? And I don't mean hobby pay. I mean real money that you can count on week to week. I've been reading here for a few weeks so I know there are a few that make money. But everyone also seems to have a significant other who is also working, so it is hard to tell if the income made in MK is something that you can totally rely on.

    I realize that just because it didnt' work for me does not mean that it won't work for someone else. We are not all good at the same things; BUT, it would seem that more in MK would be turning a good profit consistantly. In my discusstions with anti MKers these are the complaints that are high up on the list.

  6. Philippa -

    It's MKShay. I had to use "Anonymous" for some reason - not sure why.

    I appreciate your taking the time and posting. I hope you keep coming back and posting some more! :D

    I agree with you on the Director flashing the big check. If that is a one-time high, then she should say so. If not, then she should say so. Good point. :D

    I think you are also right about disclosure up front - maybe not every single thing (because you can give someone information overload), but certainly mention some of the costs of going to events/training. Then also mention free training opportunities (such as conference calls, InTouch, etc.). I think making a distinction would be a great idea!

    As far as the time involved in doing a SCC, I truly think that varies from person to person. Mine don't take that long (but I don't have a lot of inventory to take and I always have my bag packed and ready to go). I also don't do color and skin care in the same class, which makes it shorter.

    Philippa, I don't have the answers as to how many people are making "real money" in MK. I know there are some, and I know there are some doing so without help from a spouse to pay the bills, but I have no idea how many.

    I hope you keep posting. You make excellent points and are careful to present your concerns in a calm, respectful manner, and I admire that.

    I would love to hear your views on future posts (and to continue voicing your opinion on this thread, as well).

    MKShay (I couldn't post this without using the Anonymous label - not sure why)

  7. I believe it is very possible to make good money working partime hours, the key is, just like any other new business you are going to have to start and build first. I have many in my unit making good parttime pay for parttime work. What I find is the BIGGEST problem is almost everyone starts MK "parttime" usually in addition to another job that is the primary source of income. So if life gets busy it is very easy to backburner the Mary Kay.

    The key to building your MK business is consistancy. So if you only do a class a week or a class every other week and do it CONSISTANTLY things will start coming together. You will be finding and adding new clients and within about 4-6 months you will begin to get reorders from the clients.

    What I see so often, is a consultant will start and be enthusiastic and book and be on a roll and then something happens in her life and she doesn't do anything for quite awhile. (In many cases because there isn't a need to do it because it hasn't become an income yet).

    The other thing I have observed, if I could book the classes for a consultant and told her you have a booking this night at this time, (like reporting for a job) she would probably be great. What I find is sometimes hard - to get consultants to book.

    For me, MK is my income so I must "work" it because I have no other income coming in.

    I also an not a stay at home mom, because financially that isn't an option for us.

    So if the income from the business isn't REQUIRED, I find the dedication it takes to make it work isn't always there.

  8. You are so right, MK4ME. I know that I worked a lot harder when I was a single mom than I do now - because I have a hubby to help with expenses and income.

    I am working to get my SCC's booked consistently - I know I am in a transition right now, but things are settling into a routine with Hubby's job. It will happen - but it will take time. :)

  9. another great point mkshay, it will come together in time. Now, I am not talking about a director that may have been struggling with production, I am talking about us as consultants, MK is not a get rich quick scheme (I use this line right in my interviews) you will start and build and it may be awhile before you can TAKE a profit, it doesn't mean you aren't making a profit.

    I do feel that on occassion, a recruiter can oversell and then a new consultant expects immediate posetive big $$ results, but this is unrealistic - in other cases, I think alot of individuals join and think it is going to be EASY and when it requires some effort and it isn't instant gratification, they are discourage or they simply don't give it the chance to work for them. So they quit before they have given it a constant, steady chance.

  10. I think there are times when a recruiter paints an overly rosy picture of the business. This hurts people in the long run, because then the recruit has unrealistic expectations. They will quit as soon as their illusions are shattered.

    But if you paint a realistic picture, I believe the chances of the recruit sticking with it are higher.

  11. Pink Bren here...

    I think that this is great. You know Rome wasn't built in a day and neither will your MK business. I always tell the people that I talk to that it takes hard work. This is not hard work there is a difference. You have to be willing to put the time and effort into to reap the benefits of it.

    When I started my hair business I worked from sun up til sun down. Now that my business is pretty steady I have cut down on my hours. I only work a 1/2 day on tuesday and full days wed - fri. I could not have done this in the beginning. I am not getting rich however I am busy. I would rather work hard (and let me tell you the hair business is very hard work) 3 days and have 4 off. Anyway the point I am trying to make is that if it is worth having it is worth working hard for.

    I don't think that we should paint a rosy picture because that just makes it hard for the person starting out. You know I would rather tell the truth than for them to get discourage and quit. This is just my opinion.

    Have a GREAT NIGHT

  12. I hear Mary Kay consultants talking about tax write-off as they were going to make expenses for free, or at least to get the money back at the time they pay their taxes.
    I heard "I am spending $500 for a trip to South California where I am going to hold a party and it is a tax-write off". It sounded like “The trip is going to be free after I pay the taxes because that $500 that I should have paid in taxes I am not going to pay”. That is not true.

    First of all, you will have some advantage only until your revenues are more than expenses.
    If you sold $200 and you spent $1000, you are going to pay $0 in taxes. You will pay the same ($0) if you spent $200. You paid in full that $800 difference and you are not going to get any tax advantage on that!

    Second, every expense you have in your business after taxes is going to be discounted by the percentage of taxes you are paying. This means that if you spent $500 and your taxes are 35% of what you made it is like you had spent only 500*(1-0.35)=$325. You get an advantage but it does not mean that you got it for free.

    Each time you have the option to have an expense or not, you should think twice if doing it or not. If you are making revenues, you are going to get a tax discount but it does not mean that you can spend money and get them ALL back at tax time. If in that trip in South California you did not sell anything, avoiding it would have put $325 more in your pockets.

  13. Whoo, I totally agree with a lot of points made here. When sharing the opportunity, there are a couple of points I always make sure to make:

    - "This is not a get-rich-quick scheme. I wouldn't trust it if it were."
    - "This business is simple, but it is not easy."

    It's a business. It is going to take some time to build it up, to find your repeat customers, to perfect your approach, to learn how to work smarter and not harder. I used to get frustrated about the "make full time money in part time hours" until I realized that the reasons all the packing/cleanup/booking/etc. was taking so long was just in the method I was using. As MKShay mentioned, she always has her bag packed up and ready to go. If you're always ready, you don't have to GET ready! I am working on improving my efficiency and working smarter, not harder. It will take time for me to perfect whether or not I want to pack all of my fragrance demos, or maybe to pack them but not put them each on display, or maybe to use a large luggage case instead of 2 bags and the MK rolling luggage rack, or whatnot. Already I am learning simple time-savers, even seemingly obvious ones like cleaning up mascara wands/shadow brushes/cotton balls AS I close the table. I believe that when I get that down, and finally commit to double/triple booking (as successful consultants that I have shadowed do), things will steadily improve.


For Further Reading...

This Week On Pink Truth - Click Here
Pros and Cons of Mary Kay - Read or Contribute or Both!
First Post - Why I Started This Blog
The Article I Wrote For ScamTypes.com (here) (there)
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