Tax Tips for Direct Sellers

August 29, 2013 – 00:29
What is a 1099 Form? (with pictures)


FS-2007-24 (SP), October 2007

Some people's income is based on sales and not on the number of hours they work. These are known as direct sellers. Sometimes there is confusion about the tax rules that correspond to direct marketers.

This fact sheet, the seventeenth of the Tax Gap series is designed to help direct marketers better understand the rules so they can get the most from their deductions and pay their fair share of taxes.

The largest portion of the tax gap, or the amount of tax that goes unpaid each year, resulting from taxpayers who report a lower amount of taxable income that actually receive. Most people want to pay their fair share of taxes, but many just need to have a better understanding of their obligations.

Direct sellers include any of the following:

A person who sells products to consumers at home or in a business or other than a permanent establishment of retail,

A person selling consumer products on a commission basis or deposits or other persons who sell the products in a place of business or

A person who makes deliveries and / or distribution of newspapers or shopping guides.

Direct sellers have certain characteristics in common. Their remuneration is related to sales rather than the number of hours worked. The services are performed under a written contract between the seller and the person for whom the seller performs services.

And the contracts involved state that sellers should not be treated as employees for federal tax purposes.

Sources of Income

Direct sellers declare the income on Schedule C or Schedule C-EZ of Form 1040. The different kinds of income that a direct seller may have to declare may include:

  • Sales

  • Commissions, bonuses or percentages of income received from sales and the sales of others working for the seller,

    Prizes, awards and business gifts received from sales and

    Products received to meet certain sales quotas.

    A direct seller must include in the tax all income received despite having received or not informative form that states that income, which, in general, is the Form 1099-MISC. A vendor who sells at least $ 5, 000 in all consumer products to a vendor for resale in any place other than a permanent establishment of retail, is required to report the sale by checking the box number 9 of Form 1099 - MISC.

    Spending Situations

    Usually, direct marketers can deduct business expenses ordinary and necessary. However, the costs of establishing a business are capital expenses and are not deductible unless the seller elects to deduct the expenses. The seller makes the election by attaching some information to your tax on income in the year in which the business began and posing for the expiration date.

    The business start-up expenses may include the following costs: exploring different opportunities for direct sales, training to become a salesman for a product line, charges paid to the company to become a direct seller and the purchase of equipment Initial sales of the company.


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