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.