What do Mary Kay consultants have in common with the following people:

•     Ophra Winfrey,

•     Ross Perot,

•     Martha Stewart,

•     George Steinbrenner, and

•     Bill Gates

These people are all rich.  Generally, Mary Kay Consultants are not!  However, all of these people own and operate their own businesses.  Mary Kay Consultants do too!!  - even though ours are small and generally home-based businesses.

Business Organization and record keeping...  

Who became a Mary Kay consultant to do paperwork?  Very few; however, it is an inevitability and is required by the Internal Revenue Service (IRS) as part of owning and operating your own business.  Remember, you're working for yourself and running your own business.  You do not have an employer as you do not get a "pay check and W-2" with this business.  Remember, no job is ever done until the paperwork is done!!  You are the OWNER and, unfortunately, the paperwork comes as part of the deal.  However, along with ownership comes many advantages some of which include:

•     being your own boss,

•     working at times when you want to, not when someone else dictates,

•     determining when and how you operate the business,

•     being able to reap the full benefits of your labor, and

•     building your personal wealth (very few get rich by working for someone else
      - they may but you don't).

In addition, there are many tax advantages being a business owner.  Congress has passed TWO different tax systems for this country.  No, it is not one for the rich and the other for the rest of us!  They are:

•     W-2 Wage Earner and

•     Business Owners.

Take advantage of being able to be in the second category.  There are a lot of benefits and tax breaks that business owners have that do not apply to W-2 wage earners. 

The objectives of this section are:

•     Discuss some potential tax strategies and myths,

•     Develop an awareness of the "What, Why, Who, Where, When, and How",

•     Discuss some of the Necessary Documentation,

•     Provide references to some of the available resources at your disposal, and

•     Attempt to help you get organized to minimize the paperwork requirements.

Potential tax strategies and myths:

1. Get an Early Tax Refund each year -

   Use the IRS form W-4 to accurately reflect what your tax situation and obligation will be at the end of the next year and only have the minimum necessary withheld.  You do not need to "overpay" during the year and get a refund at the end of the year.  All you are doing is giving the US Government an 'interest free' loan.  Work with your accountant to mathematically project what exemptions you should be taking during the year.  This will give you money in the pocket each month.

2. Deducting Business Travel Expenses -

   Make sure that the primary intention of all of your business traveling is necessary and reasonable for business purposes and that they are properly documented.  The keys here are "primary intention, necessary and reasonable for business purposes, and properly documented".  Any deductible business expense must meet four key criteria to be eligible:

   •     The expense must have a legitimate business purpose,

   •     The expense must have a business intent,

   •     The expense must be reasonable for your business, and

   •     It must be properly documented.

3. Must Make a Business Profit -

   For any expense to be legitimately deductible, the business must have the "intention to make a profit".  Beware of the old IRS adage that you must make a "profit three out of every five years".  The tax law indicates that you must have a profit motive.  Documentation is the key!  No one should be in business unless they intend to make a profit - otherwise, it is a hobby and not a business.  How do you prove your intention to make a profit?  There are several ways - operate your endeavor as a business keeping the proper records, separate bank account, separate credit cards, etc.  Work with your tax professional relative to other ways to prove your intention.

   Sandford Botkin's Tax Reduction Institute©  has several products which include the 'Tax Strategies For Business Professionals Audio Tape or CD Set' and his book 'Lower Your Taxes-Big Time' that can help you with this. Who is Sandford Botkin? Go to his web site:

4. Deducting business mileage -

   Mileage between your home and your office is commuting and is not normally deductible - but for home-based businesses where the office is in the home and it meets the tests for a home-based office, mileage when you leave your home office becomes business mileage when it meets the following criteria: "primary intention is necessary and reasonable for business purposes and is properly documented".  Auto mileage can really add up to a significant number and deduction based on current IRS approved mileage rates, but it must meet the criteria to be eligible such as delivering product, meeting with customers, facials, skin care classes, recruiting appointments, business meetings and workshops and other necessary business related activities.  Again, the keys are primary intention, necessary and reasonable for business purposes and proper documentation.  Be cautious about mileage with dual purposes.  Simply talking with prospects and handing out business cards do not qualify as they are too passive of activities.

5. Hiring family members -

   In situations where the husband is willing and can provide necessary assistance required for the business, this strategy is terrific.  The key is his job must be necessary and reasonable for your business and have a legitimate business intent and purpose.  In addition, the salary including any fringe benefits must meet the IRS reasonable wage calculation for the type and amount of work that is being done.

   The business will need to apply, probably as a sole proprietorship or L.L.C. whichever is appropriate, to the IRS using IRS Form SS-4 for a Tax ID number for the withholdings.  Obtain a copy of IRS Publication 15 (Circular E) for the current year which provide the current withholding tables.  The business will pay the employee regularly withholding any appropriate income taxes, Medicare, and social security taxes each payday.  Annually, the business will provide the employee with a W-2 and will file a W-3 with the Social Security Administration as well as the new IRS 944 form (new in 2006 which replaces the quarterly IRS Form 941).  (More paperwork but well worth the effort.) 

   Employees can attend conferences and other events when the intent and purpose is necessary and reasonable as part of their jobs and their expenses become deductible when properly documented.  Generally, you can not deduct the expenses of a spouse or relative attending a convention or meeting unless that person also has legitimate and independent business reason for attendance.  Again note, the  intent and purpose of attending is necessary and reasonable and properly documented for the duties of their position.  Providing incidental services such as typing notes or assisting in entertaining customers or just being 'along for the ride does not cut the mustard'!

6. Setting up a Medical Reimbursement IRS Section 105 Plan (MRP) -

   This little known section, to most people, provides an excellent fringe benefit to your employees especially when they are family members.  It allows the business to set up a 100% Medical Reimbursement Plan to employees and their families that can cover 100% of their medical insurance costs, co-payments, deductibles, eye glasses, dental, prescriptions and even over-the-counter drugs.

   The business can reimburse the employee for 100% of his or her medical expenses, deductible to the business and NOT taxable to the employee!  The business will handle these expenses on IRS Schedule C as a fringe benefit and not on Schedule A as an itemized deduction as it is becomes a business expense and not a personal expense.

   For more information relative to the Medical Reimbursement Plan, refer to both of Sandford Botkin's products, 'Tax Strategies For Business Professionals Audio Tape or CD Set' and his book 'Lower Your Taxes-Big Time'.  In addition, the following web sites, along with others, have plenty of information.

   Tax Reduction Institute                            www.taxreductioninstitute.com

   National Association of Self Employed      www.nase.org

   Association105 HRA                                www.association105.com

    

   If you plan to use this strategy, do it right!  An article in the April, 2001 issue of the J.K. Lasser Monthly Tax Letter provides a caution against Medical Plan deductions stating that just "hiring" a spouse is not adequate unless proper work is done and the proper records are kept. It will save you a bundle, but it must meet the IRS criteria.  Be sure to establish a reasonable wage including salary and any fringe benefits that meet the IRS reasonable wage calculation for the type and amount of work that is being done.

7. My accountant takes care of my taxes -

   This makes more money for the IRS than any other seven words in the English language!  All your accountant can do is to use what you provide them by putting it in the proper place on the proper IRS form.  They can NOT make up documentation!  That is not their job plus it would be unethical and illegal for them to do so. 

   You must be informed about running your business and your taxes!  Taxes are so complex many times CPA's and accountants are specializing like Doctors.  Be sure to work with someone who knows the rules and regulations or who, at least, knows who to turn to for advice relative to home-based businesses.  Remember, YOU, NOT your CPA or accountant, are ultimately responsible for your taxes!  When it comes to taxes, it not what you know, it's what you know that is NOT TRUE that can hurt you.

8. Tax Season -

   Tax season starts on January 1 each year for the April 15th fifteen months away.  If you until the February or March before the April 15th filing deadline to try to get your records in order, you are in a heap of trouble.  It's too late for last year, you need to start planning and documenting for next year.  If you structure life right, keep the proper receipts and document everything properly, you can save many tax dollars.

9. Proper Documentation -

You have seen this term over and over again in this discussion.  It is critical!  According to the way IRS operates and thinks, if it isn't written, it did not occur!  That means at the time of the event or, at least, within 24 to 48 hours of occurrence - not 12 months later.  Am I talking about a large amount of time?  Absolutely not!  At a maximum, ten minutes per day - probably no more than five minutes on most days.  Do you have that much time to save hundreds or thousands of dollars.  Most people would say "YES", with no hesitation.

Develop an awareness of the "What, Why, Who, Where, When, and How" of the necessary documentation -

This is the documentation that you need to justify your legitimate business expenses.  You need to have this in as concise a manner as possible that can be easily entered, organized for efficiency, and provides all needed details.  Sure, you can do this on a 'Big Chief' tablet, but if you do not have reminders as to what you need to document, the odds are you will not have the necessary detail that is required by the IRS criteria.

You need a Daily Diary Tax Reduction System.  You can get many daily planners at most office supply houses.  However, these help plan your day and do not provide a good place to enter the expense details of your business.  Good daily diary Tax Reduction Systems that provide the necessary information can be found on the following website:

Tax Reduction Institute                             www.taxreductioninstitute.com

I have found this to be adequate, but it is generic and does not provide the efficiency that I want.  It provides for the necessary "What, why, who, where, when and how" that is required.  However, I want my expense categories in my diary to match up with those on the IRS Form Schedule C.  In addition, I want to be able to enter an income or expense item once into the diary, once into a computerized customizable accounting program, file the receipt in an expandable file folder by the appropriate category and never ever have to touch that receipt again unless I need to verify the income or expenditure for some reason.  The accounting program should be able to print out summary reports for each of the categories so that I can enter the information directly onto Schedule C.

References to some of the available resources at your disposal -

At the current time, I am using Quicken using customizable categories, explained below, with a complete separate file for the Mary Kay Business.  The advantages of Quicken is that more management reports are readily available that, I think, gives a better view of how the business is doing.  There may be others that are just as good, but I have not worked with them.

I have developed a customized daily diary system and a  monthly diary cover sheet that is similar to the others but customized to meet the needs of a Mary Kay consultant.  This diary page can be printed out, cut into half to provide a 5.5 x 8 inch page to fit into a small notebook, and can be kept in the car to record mileage amounts, who, where, and why as well as other expenses on a daily basis.  In addition, printing the sheets on both sides means that you will have one sheet for each day of the year with the mileage and trip information facing that day's expenditures.

The following are websites that provide a wealth of tax information.

   IRS Forms and Publications                www.irs.gov/formspubs/index.html 

   Tax Reduction Institute                      www.taxreductioninstitute.com

   National Assoc. of Self Employed       www.nase.org

   Association105 HRA                          www.association105.com

   J K Lassers Tax Guides                      www.jklasser.com

   Tax Resources                                  www.taxaudit.com

   Quicken                                            www.quicken.com

   TurboTax                                          www.turbotax.com

      and

   Mary Kay InTouch      http://applications.marykayintouch.com/community/default.aspx

This link will provide you a daily timecard that can be used for each employee to document the what, when and how much that they have worked.

A list of income and expense categories that match up with the current IRS 1040 Schedule C along with labels for the expandable folder is provided.  Most consultants will not need all of the income and expense categories; however, directors will find that most of them may be applicable to their businesses.

For those who use others for tax preparation, a summary sheet of Inventory, Income and Expenses is available that will provide approximately 95% of the business information that will be needed for Schedule C and IRS Form 8829.   If you do your own taxes, be sure to get the TurboTax version with Schedule C in it.  All versions do not have Schedule C.  For 2006 tax returns, this will be the TurboTax Home and Business Version, but the name of the version may change from year to year.

The link above to Tax Resources will provide information relating to Tax Audit defense.  Also, there is information on the Tax Reduction Institute website relative to Tax Audit defense.  At the end of the TurboTax program after all entries have been made, there is an option of getting the return reviewed for errors by professionals at Tax Resources as well as an option to purchase Tax Audit defense.

On your Mary Kay Intouch web page, along the top menu, click on Resources and then on Tax & Legal link.  You will find many links to the various tax and legal items which you need to be familiar with.

	This Income Advisory Statement will provide you with a summary of all of the commissions that Mary Kay paid you during the year.  This should match your monthly commission statements that you receive.  The Advisory Statement will cover through the end of November.  You will need to add any commissions received during the month of December to cover the entire year. At the bottom, you will find summarized totals of the Section I products and Section II sales aides that you ordered from Mary Kay throughout the year.  Again these totals will be accurate through the end of November.  You will need to add on any orders that you placed during the month of December.  These totals should match your individual Product Invoices that you get each time you receive an order shipment from Mary Kay.
If you made any minor purchases from other consultants during the year for product that you needed immediately for which you could not wait, you will need to add those amounts to these totals.  However, these type of purchases should be minimized because: They are probably in violation of your consultant's agreement with the company, There is no assurance that you are getting contaminant-free product or that it is fresh, The product is probably not covered if your customer wants to return it for a refund or replacement for some reason.
By clicking on the Tax Essentials tab, you can print out the current version of the Tax Essentials information.  This is good generic information that you should be aware that is available from the company.

Organization to minimize the paperwork requirements -

No matter what you do with your business, my minimum recommendations are listed in the attached document. 

Other suggestions include:

Ordering an accounting software that can be customized to match your income and expense categories.

Going to Office Depot or other office supply house and obtaining a simple 31 part expandable folder (generally one section for each day of the month). 

Printing the income and expense labels onto Avery or other label sheets.  Use the labels that you need and cover up the dates on the expandable file.  Get a new expandable folder every year and remake your labels.  Leave all receipts filed in the old folder and never touch them again after you first put them in it.

Keeping the income and expense category sheet readily available when entering expenses into the diary and the computerized accounting software.

On at least a monthly basis or more frequently if desired, input the information from the diary into the customized accounting software.  On a regular basis, print out your Profit - Loss statement to see how you are doing.  At the end of the year, print out the category reports and make any final adjustments or necessary tweaks to enter the necessary information into Schedule C. 

Simple, fast, well-organized and very time-efficient.  Most of this can be done by employees so that the consultant does not get 'bogged' down into paperwork and recordkeeping.  Consultants need to be talking to potential customers, recruits, doing facials and classes while this mundane, but necessary, work is being done by someone else.

Inventory Programs -

Finally, every consultant that is seriously in business need an inventory control program.  When product orders are placed and received, go to your Mary Kay InTouch page and copy the order information and then go into your Inventory Control program and paste the Product Order into the appropriate Inventory Received Option that is available.  It will be different based on which program you have.  As sales are made. enter the sales invoice information into the program.  The inventory program will track what you have on the shelf as well as what has been sold to whom.

Therefore, the next time Jane calls and says that she wants some of that foundation that she bought last time but she does not remember what it was, all you have to do is to type her name in and it will provide you with everything that she has ever ordered.  Even husbands can figure out what she ordered last time.  If you do not have an inventory control program, you must go back through all of your invoices to find her previous orders to see what her product was.

Software Database for Mary Kay Consultants

Steinhoff & Associates                      www.steinhoff.com/updates/trial_download.asp

Boulevard                                        www.mainstsoftware.com

We use the program from Steinhoff & Associates.  It was the one that was recommended by a consultant that was in business back when we first got into Mary Kay.  I have always found them to be very considerate of special needs and very helpful when I had problems with my databases and files.  After you once purchase the program, you will only need to pay an annual fee to get the regular quarterly updates that match the changes in the current Mary Kay order form.  There are other programs on the market, but I have not used them and can not vouch for them.

Legal Ease -

Every consultant needs to be aware of the information covered in the Legal Ease document provided by the Mary Kay Legal department.  The current version can be found on your InTouch web page, use the Top Menu, click Resources, Tax & Legal and select Legal-Ease tab to select and print it.  There are not too many requirements but you need to be aware of and follow these requirements closely.  By following these requirements, you will be able to stay in compliance with your consultant's agreement terms and conditions.

Advertising Guidelines -

Again, the same can be said about advertising.  The current version can be found on your InTouch web page, use the Top Menu, click Resources, Tax & Legal and select Company Approved Advertising on the menu to select and print it.  There are not too many requirements but you need to be aware of and follow these guidelines to the letter.  By following these guidelines, you will be able to keep in compliance with your consultant's agreement terms and conditions.

Time Management -

The file, Just for Him, provides information of how to win your husband's support for your Mary Kay career.

Use your time wisely, let others do the mundane things and you, the consultant, concentrate on the stuff that gets the product onto the most faces.  The rest can and should be done by others if your time is limited so that you, the consultant, do not get 'bogged' down into the paperwork and recordkeeping.  You need to be talking to potential customers, recruits, doing facials and classes while leaving the mundane things to someone else.

Available Files on this Page