Personal Purchase (MLM)

Today TaxMama hears from Sherrie in Salina, KS, who tells us, “I am an independent marketing executive working out of my home. The company I work for requires a monthly purchase in order to earn commission checks. Can I claim the cost of that monthly purchase as a business expense even though I use the products in my home?”

Dear Sherry,

In a word? No.

Those are personal use products. You use them. You consume them.

That’s multi-level marketing. And IRS scrutinizes those arrangements closely for just this kind of abuse – that many of the companies teach their members.

You can see what IRS looks for by reading their audit guide of direct sellers – if you can stay awake:
http://www.irs.gov/businesses/small/article/0,,id=141724,00.html

There are two ways to deduct some of those purchases.

One – Test new products as they come out.

Actually run tests of the product. Write up a list of criteria you’re testing. Monitor the test and write up the results. Publish the results to your own downline and/or on your own website or blog.

Then, you may deduct the FIRST purchase of each product. Not subsequent purchases.

Two. Naturally, if you’re buying the obligatory minimum quantities of product each month and you are selling YOUR purchases AND you’re reporting your income, then you can deduct the purchases as inventory – or cost of goods sold.

Good luck with making this venture pay!

Remember, you’ll find answers to questions about multi level marketing (MLM) and all kinds of tax issues, free. Where? Where else? At TaxMama.com

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