Tax Time Always Reminds Me of Those “Mary Kay Deductions”
Every time April rolls around, I think of all those Mary Kay meetings I attended, where the Directors would spend the entire time advising all us Consultants on what Mary Kay expenses were tax deductible.
Turns out they tried to find a way to make nearly everything a deductible expense.
But the trouble is, deductions do not equal income, and if you’re not careful with those deductions you could find yourself in trouble with the IRS.
While it’s true that things like your cell phone costs, if used for your Mary Kay business line, and other things like mileage and meeting costs can be deductible, it’s not the same as income.
So what if you have thousands of dollars of deductions? Your goal as a business person is to create income. Deductions reduce that income, sure, but there was so much emphasis on how Mary Kay created tax deductions that it missed the point.
If you’re showing a loss on your income taxes, guess what? You didn’t make much money. Sure, there are things you can deduct that you would have as expenses anyway, perhaps. But loss is loss. And if you show a loss on a business you’re reporting on a Schedule C for several consecutive years, the IRS may not see that as a business and you could be in trouble.
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You are absolutely correct. Although items may be “deductible”, they are deductible from your INCOME not from your INCOME TAX, i.e., they are not tax credits. For example, you may show business mileage on your Schedule C for $1000. Depending on your tax bracket, you may end up with only about $60 in tax savings. You are still out $940 in cash. I think that I could find another way to use that money.
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Haha, deductions . . . directors act like its free money. NOT! I had to make the decision to not include a number of things (postage, fees, etc) in my taxes, because it turned my meager profit into a loss thereby increasing my audit potential. EllenK is right, that money is better spent a number of different ways.
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2 things…
1.- Tax Law Favor Business Owners. THERE SI NO QUESTION ABOUT THAT. Employees get their taxes “PAID” even before they get their paychecks. Business owners spend their profits, deduct expenses and pay taxes on the amount left. Please read previous statement twice.
2.- The only advice you should accept regarding your taxes should come from a certified CPA. There are way too many yearly changes to tax law which disqualify the above people from telling you how it works. All I know is that last year under my W2 filing I should had paid the IRS an extra $ 3,800.00 BUT after I added my 1099 Form Issued by my MLM company and listed my legal deductions I RECEIVED $ 2,224.00 from the government. NOW try to convince me that I made a bad decision joining an MLM company. I actually MADE $ 6,024.00
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