IRS rules say that you must be able to prove intent to make a profit with your direct selling business; especially if end up taking losses and want have them allowed.   To “prove intent” you must be able to show that you carry on your career activities in a “businesslike manner.”   This includes keeping good books and records of sales, activities, and expenses.  

If you are unable to convince IRS that you’ve been acting like a real business, then the chances are pretty good that deductions & losses will be disallowed (for current year and the past)  and the activity declared a hobby. (this equals pay back taxes, plus penalties, plus interest.)  The Internal Revenue Code clearly specifies that “the activities of [your Direct Selling Business] must be carried out with the intention of making a profit.”  In recent years, the courts have consistently ruled that there must also exist  “a reasonable expectation of eventually making a profit.”

There are several factors that the IRS will consider in deciding if the intent to make a profit is present in your Direct Selling business.

• Manner in which you carry out the activity (is it business like?)
• Expertise and knowledge in carrying out the activity
• Amount of time devoted to creating a profit (is it adequate?)
• Success of business (e.g. the taxpayer)  in carrying out the activity
• History of income or losses
• Financial status of the taxpayer (how much of ones wealth is tied up in this activity)
• Elements of personal pleasure or recreation involved
• Management of the finances of the business 

Whether you’re playing sports or cards, you just have to know the rules so you can win the game.  Vicky Collins, CPA (Deduction Expert on DSL) can help teach you all about what you can and can’t deduct.     You must always remember that if you want to take deductions, then you’ve got to know the game your playing, and whose rules your playing by.   Knowledge is power!