Audit Trend Resurrected After 20 Years

This article will be of most interest to you if you are working with a Network Marketing, Multi-Level Marketing or Direct Selling company.

The IRS appears to be resurrecting the old audit techniques It used in the mid-eighties when it attacked the Amway Corporation and all of its sales affiliates.

They seem to be looking for any excuse to disallow most of the business deductions on every return.

There is definitely a bias against network marketing Companies. One auditor even went so far as to put In writing, “This taxpayer’s business is recruiting, and All those type businesses are illegal.”

Most auditors are not that biased, or that ignorant. However, if you are operating your business in the multi-level or network marketing format, you need to know a few things:

1. You need to work your business in a more “business- like manner” than someone running a store on the corner. This is unfair, but a reality in the present climate.

2. You need to keep accurate records of all your activities, and their connection to your business success.

3. You need to seek out your sponsor or upline who is making a profit, and learn from him or her. Put your sponsor on the spot. Ask to see their last tax return. If your immediate sponsor is not yet making a profit, Go farther up the line until you find someone who is, and pattern your business after theirs.

4. Do a PERSONAL business plan. Start with the one provided by your company, but personalize it based upon the discussion you had with the successful person in your upline. And, don’t forget the most important information – the numbers. Show how much you brought in last year, and how much you spent in the most common categories. Then do the same for this year, to-date. Then project these figures into the future for as many as 5 years. Be sure you can justify your income estimates based on the number of phone calls you make, tapes you give out, or other criteria taught by the company you work for. In other words, if it takes 3 give-aways to get one appointment, and 3 appointments to get one sale, then you have to give away 9 tapes or flyers to make each sale. Are you doing that? If not, why not? How are you going to make the money you project otherwise?

5. Use the following average expenses as a guideline. They are what we have found to be representative of the expenses paid by successful network marketers. Not just the ones making million-dollar incomes, but those making just a good 5-figure income, too.

The percentages are of Gross Income:

Inventory (Cost of Goods Sold) – 20% If none, see below.
Communications (Including Phone, Cell, pager, Internet, etc.) – 10%
Wages – 10%
Employee benefits (Like medical reimbursement plans) – 10%
Commissions, Prizes, Bonuses paid out – 8%
Vehicle Expenses – 7%
Seminars (Including training) – 7%
Advertising (Including tapes, website, etc.) – 5%
(If no inventory, Advertising or Travel usually increase by – 10%)
Travel – 5%
Office Expenses – 3%
Meals & Entertainment – 2%
Other/Miscellaneous – 5%

If your expenses are not somewhere close to these averages, you should consult with your successful upline again, and see where you are spending too much money, and/or not enough time.

Hopefully, between a good business plan that shows when, and how much, profit you will make in the future, and use of the above averages to gauge your success, you won’t be one of the victims the IRS is seeking in your industry.

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