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Making Tax Time Less Taxing : Part Three--Know Your Status!

Copyright 2004 John M. Hanevy

 

In order to file your income taxes properly you must know how to classify your business--what's your status? Are you an Independent Contractor, a Direct Seller, a Corporation? The tax laws are different for each.

 

If you work as an affiliate of a company, chances are you are an Independent Contractor. Independent contractors receive no salary or benefits from their employer, they are not under the direct supervision of their employer. Their employer may provide supplies and leads, but how that employee achieves their task is entirely up to them--no one is standing over them telling them what to do.

 

This is the basic definition of an independent contractor, most affiliate programs will state in their membership agreements that you are an independent contractor. If you are an online marketer, you are an independent contractor if you only make sales through your "gateway" sites--you don't buy the product(s) in bulk and resell them at a mark-up. If you do this, then you are a Direct Seller.

 

Direct sellers buy inventory of a product, or products, then mark it up and resell it at a profit. This can be very profitable, but it is very important that you keep very good records on how much inventory you purchased, when it was purchased, and at what cost. All of this information will be needed at tax time! If you think you may be a direct seller, check IRS Publication 911 to find out for sure. There are many tax advantages that go along with being a direct seller, check with a qualified tax accountant for more information.

 

In order to be a Corporation you must officially register a business name. Being classified as a corporation usually implies that you have other employees that you pay salaries to. Incorporation is a very complex procedure, you should consult both an accountant and a lawyer before considering this step.

 

Regardless of your status, you are Self-Employed, and must follow the tax laws that apply to that category. Depending on how much income you make during the quarter you may have to file estimated tax payments. This is where the spreadsheet you created, in Part One of this series, will come in handy!

 

Even if you don't have to file estimated taxes you may still have to pay Self Employment tax (Schedule SE). You will need to complete Schedule C, Net Profit or Loss from a Business to determine if you owe Self Employment tax. This is only for your Federal Return, you may have additional requirements for your State Return. Schedule C will also show if you have a loss from your business, any loss can be used to reduce your income on your Federal Return (if all capital is at risk).

 

There are tax advantages available for Self-Employed individuals. For example, you can put a portion of your income into a SEP, similar to a 401K, to be used when you retire. You may also be able to deduct the cost of health insurance, auto insurance, and home insurance--or a portion, depending on how much your business relies on these services. If you can dedicate a portion of your home to your business, you will have many deductions available to you. (talk to your accountant!) Know your status--know which benefits apply to you!

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John M. Hanevy is an affiliate of SFI, Strong Future International.

SFI markets many products for business and personal use : IAHBE memberships, wireless plans, multivitamins, Purjava coffee, and more! Become an affiliate free, no membership or start-up costs. Training, websites, support provided. Join SFI Today

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