Putting Lipstick on the Pig (Or Maximizing Profits by Minimizing Taxes)

This article comes with a disclaimer: The author is not certified in any way to provide professional accounting or legal advice. The information herein was given to the author by a licensed professional qualified to counsel clients regarding federal tax law. The specific advice was given to the author based on his particular circumstances and on the current tax laws at the time. Your situation may differ from that of the author’s and you should seek qualified professional counsel from a CPA or tax attorney before implementing the idea discussed below. This article is intended merely to pique your curiosity enough to seek the appropriate counsel—not to offer advice.  

There are a lot reasons people get involved with Network-Marketing and Direct-Sales companies and usually they have something to do with making money. The truth is that it’s not how much you make—it’s how much you keep (aka, profit). There are two aspects of creating profits: maximizing revenue and minimizing costs. It is the second aspect that we sometimes don’t pay enough attention to.  

Fortunately, in our industry, there aren’t really a lot of direct expenses. Once cost that can be substantial though, is our tax liability. That’s the beauty of home-bases businesses—depending on specific circumstances, home-based business owners can legitimately deduct the use of a home as a business expense. There are some very specific criteria that must be met to do so. Based on the advice I received, my business meets that criteria.

For years, I claimed the home office deduction using the typical method by calculating the ratio of floor space allocated to my office. Even though the office is a separate room and dedicated to business, it is small. In fact, it represents less than 5% of the overall floor space of my home. Still, a five percent deduction of my use-of-home expenses was better than nothing.  One day I was at a seminar conducted by a CPA. He mentioned something in passing that really got my attention. I was so struck by his comment that I called a tax attorney to validate what I thought I heard. To my amazement, he substantiated the idea. Here’s what he told me (remember I’m not suggesting you do this without counsel):  He told me that the most common method of calculating the home utilization ratio is square footage, but that there is a lesser-known and equally legitimate method. He explained that in the alternative method, I could use the ratio of room counts instead of square footage. He explained that to use this method I would take the total number of offices (in my case 1) and divide it by the total number of rooms in the house (not including bathrooms). In other words, I could use 1 divided by 7 as the ratio. This comes out to 14%. That’s almost three times the deduction!  As it turns out, there are a number of lesser-known tax deductions that have direct application to our business model. By understanding them, getting professional counsel, and keeping the appropriate records, we can significantly increase our profits. It’s that last little bit I used to struggle with—keeping records. I say “used to” because I found a tool that takes the tedium out of record keeping, and it was designed specifically for network marketers. For more information visit here.  So with a little bit of qualified advice and some simple record keeping, the benefit of my home-based business increased immediately. So did my profit. Taxes are taxes and a pig is a pig, but with the right lipstick, it doesn’t have to be quite so ugly.