Have a client that started a Mary Kay business in 2006. Is there anything out of the ordinary about these type of operations that I need to know? Just seems like a regular Sch. C to me.
-
-
Making a Profit
is out of the ordinary. -
Be aware.......
........ that they have two types of income, A> profit on sales B> other income. Other income comes from commissions from those under them and awards.
The biggest problem is the IRS and what Mary Kay tells their sellers what is deductable. Too many are in it for the social value, not for profit motive and the IRS knows it.
Good Luck, I wish I could get rid of the ONE that I have but it is connected with one of my business account (wife).This post is for discussion purposes only and should be verified with other sources before actual use.
Many times I post additional info on the post, Click on "message board" for updated content.Comment
-
Not sure
I want this thing either. Client is a friend of my wife. When the client told me about this, she did mention that if I didn't want to handle it, she knew someone who "specialized" in doing Mary Kay returns. I do get the feeling she is looking more for a tax write off than making any money.Comment
-
If you haven't already done so, you might want to read Pub 911 (aptly numbered I think).Comment
-
That's Pub 911? I'm not finding it on the IRS website.Comment
-
"Results Not Typical"
That's probably the way the ads for these operations should read.Originally posted by skhyatt View Post
Don't get me wrong because I haven't actually done any Mary Kay returns, but, over the years, I've done half a dozen or so like Amway and...ummm, I can't really remember the various company names now, but they were pretty much all alike. There are always a few go-getters and self-starters than can and do well and are role models/good advertisers for them, but I think the majority throw in the towel within a few years (or months). Some extroverts surely make a killing, but probably most don't make a go of it -- too many hours, too much time and trouble, and for too little money. They're "pyramid" operations wherein the guy/girl at the top gets a cut of their subcontractor's subcontractor's subcontractor's sales (I assume somebody actually sells something now and then). It almost seems that the goal of the supersalester is to recruit people rather than to sell products. IRS used to have arguments with Amway reps about the excessive expenses generating losses to butt against other income while the actual cosmetics biz was almost irrelevant.
As far as trying it, I'd go ahead and get my feet wet -- education is never a waste and you'll later be able to say "I know about this stuff" if it comes up (and it will) in a future tax preppers discussion. You can alway plead "hobby-loss" and disengage if it gets too sticky later. Besides, the salesperson will probably quit before you do.
P.S. If you do do it; don't show a loss in the gross -- that'll get you audited jiffy-quick (it happened to me). I got so used to losses on the thing, that, when doing her last C, I didn't even notice she was, basically, selling merchandise for less than she paid for it (a difficult economic feat to pull off on a continual basis -- not to mention one to which IRS lends little credibility).Last edited by Black Bart; 03-06-2007, 11:46 PM.Comment
-
Thanks
Thanks for the heads up on the "gross". That makes sense. Also, I agree with you that I should try it. It's all an education isn't it????
Comment
-
It looks like the IRS, in its infinite wisdom, discontinued publishing Pub 911. Too bad - I thought it had pretty good info on handling the reporting for this type of "business".
In looking at the IRS website, I did find a copy in their list of previous year pubs. You can still download it from this website:
Comment
-
I didn't read it, but I also found some IRS audit info at:
Comment
-
Pub 911
Grumpy, thanks for the link. Did a quick look at it and downloaded and printed.Originally posted by Grumpy View Post
Just one thing, the example at the back of the publication is incorrect. IT IS SHOWING A PROFIT. I have't had one yet that showed a profit!Jiggers, EAComment
-
-
Thanks
Thanks for all your help guys. Much appreciated!Comment
-
The majority of consultants do lose money
There are a few that achieve Director status and get the 1099's with low six figure incomes. If you can get your hands on the Mary Kay tax guide that will answer any questions and will serve to rebuff any claims of ability to deduct wardrobe or personal use of product.
Good inventory numbers are key. If purchase, personal use and final inventory is correct then the demo product, hostess credits and discounted product will work out. Also be aware of the difference between section 1 and section 2 product. Section 2 is sales aids and is not sold. Preferred customer program is marketing assistance as is the website most pay for.
Just saw the audit report for a 3 year consultant that never showed a profit. The auditor took the position that she wasn't in it for a profit and disallowed all expenses. Have a candid discussion with your client about the 3 of 5 rule. If they can't show a profit by year 3 strongly suggest they consider it a hobby.In other words, a democratic government is the only one in which those who vote for a tax can escape the obligation to pay it.
Alexis de TocquevilleComment
-
You'll also have trouble when you ask for revenue and expenses. The conversation will go something like this:
"How much revenue did you bring in?"
"Well, the profit percentage of the discounted wholesale price here on the statement..."
"No. Stop. How much money did you bring in?"
"Well, this statement shows the percentage revenue discount factor..."
"No. Stop. I need to know how much money your customers took out of their pockets and handed to you in payment for the products you sold them. Just the total for the year."
"Um, well, it doesn't say on here."
"So you don't know how much money you took in and how much money you paid out."
"It's all right here on this prinout."Comment
Comment