Key Points for Mary Kay Representatives

Goal

Increase net worth

Turn nondeductible expenses into deductible expenses

 

Tax Structure

Self-Employment Tax

15.3%

Net Self-Employment Earnings

Business Income less Business Deductions

State Income Tax

Illinois

3%

Adjusted Gross Income

Bottom of Page 1 of 1040

State Exemptions

Federal Income Tax

Graduated Rates

10% $   6,000 $ 12,000
15% 27,950 46,700
27% 67,700 112,850
30% 141,250 171,950
35% 307,050 307,050
38.6% Over Over

Taxable Income

Itemized Deductions

Federal Exemptions

Something that is deductible against business income is deductible for all 3 tax structures

 

Deductible Expenses

General Theory

Would you have incurred the expense if you had not been in business?

No -   Deductible - Direct Business Expenses

Yes - Not deductible unless it can be turned into a business expense

 

Risk Tolerance 

Conservative

IRS agent will accept upon presentation of proper documentation

Aggressive

IRS agent will probably not be familiar with deduction

Law supports, but unusual

Gray Area

IRS agent will disallow but appeals may allow

Law does not specifically prohibit or allow

If you have a conservative mindset, aggressive positions will look like gray area.  

 

How many nondeductible items that are claimed as deductions depends on your risk tolerance.

 

Documentation

 

Cost of Sales

Items purchased

Add:  Beginning Inventory
Deduct: Items used personally
Items given as promotional/demo
Ending Inventory

Equipment Costs

Expense Election

$24,000

Depreciation

5 year life for computers

7 year life for furniture

Telephone

Separate line

One line

Specifically identified long distance only

Auto Expenses (Vehicle Expense Worksheet)

Standard Mileage Rate

36.5 cents per mile for 2002

36.0 cents per mile for 2003

Actual Expenses

Must be over 50% business use

Gas

Repairs and Maintenance

Washes

Insurance

License

Tolls

Parking

Depreciation

Limited for Luxury Autos

$3,060

  4,900

  2,950

  1,775

Meals and Entertainment

50% deduction

Must be business related

Does not have to result in a sale

Discuss business

Document

Cost

Time and Place

Who

What was discussed

 

Business use of home (Business Use of Home Worksheet)

Limited to net business income

After mortgage interest and real estate taxes

Carryover unused

Principal Place of Business

Exclusive and Regular use

Portion of Room

% Business use

Number of rooms

Square footage

Mortgage Interest

Real Estate taxes

Utilities

Maintenance

Depreciation

May cause gain on sale

 

Other

Business Income and Expense Worksheet

Paying Tax

Withholding from other sources

Quarterly estimated income tax

Current year actual

Prior year tax liability

 

Retirement Contributions

Complicated rules

Must have net income from business

Be careful who you accept tax advice from

Their situation may not be the same as yours

People don't necessarily do what they claim

Just because someone HAS deducted it, doesn't mean it is legal

 

 

 

 

Call us today to set up your personal consultation!

630.941.8650

 

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