In article <P1J0l.198775$Mh5.179149[at]bgtnsc04-news.ops.worldnet.att.net> ,
Whit <whit_mattesonAT[at]attDOT.net> wrote:
- quote -

I have an idea: the next time one of my credit cards runs a "Use this
card and get 5% cash back forthe next three months" promotion, I'll
buy a $100-list item from her for $200. She'll have the company
charge my card $20,000, and return $19,800 to me when she gets it.
(Oh, and she can keep the item or sell it to someone else, too.)

Seth

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"Seth" <sethb[at]panix.com> wrote in message
news:ghtvug$rlp$1[at]reader1.panix.com...
- quote -

They don't know what purpose it was bought for, or how much was paid for it,
or who the end customer is. Even if they happen to process the credit card
charges, they can't tie those back to specific products that were ordered.
Even if there is only one customer's card which pays for the entire order,
it's still possible that some of the products on the order were for my
wife's personal use, and were paid for with her profit from the customer
sale.

- quote -

As fas as I know, the company pays the credit card processing fee (I haven't
heard or read anything to the contrary). I don't know what will happen with
chargebacks, but based on what I've seen so far, I would expect them to come
after her for those (by deducting them from her next check(s)). I haven't
read the consultant agreement; there may be some language there about the
credit card processing relationship. I'll check it out - I agree, that
seems like a good source of information aobut how they position their card
processing service.

I'm still a little suprised that there doesn't seem to be any standard way
of doing this, but I suppose "it depends" applies here as much as anywhere.

Whit

- quote -

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In article <UCi0l.194916$Mh5.172803[at]bgtnsc04-news.ops.worldnet.att.net> ,
Whit <whit_mattesonAT[at]attDOT.net> wrote:

- quote -

I'd agree with you on that. How does the company know she didn't buy
it for herself (or as a gift)?

- quote -

If the company is her agent for collecting on the credit card, gross
receipts would be $90. Is it? Who bears the credit card processing
cost, and risk of chargebacks? (How large a charge is the company
willing to run, as a function of the merchandise cost?)

Seth

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"Arthur Kamlet" <kamlet[at]panix.com> wrote in message
news:ghq7i5$n5i$1[at]reader1.panix.com...
- quote -

At least we're in good company! Besides, it can't be as complicated as a
1031 exchange or figuring AMT with a foreign tax credit.

- quote -

In this particular MLM, no inventory is carried - product is ordered only
when the customer buys something, and it is either drop shipped, or
hand-delivered promptly to the customer. Thank goodness.

- quote -

My wife places the orders with the company online at their website, without
the involvement up her upline. They get some kind of commission on the
orders she places, of course, but they don't get it from her. Cash and
checks also come to her directly, in which case, when the places an order
with the company, she would have to use her own credit card to pay the
company for the goods. If a customer wants to use a credit card, the
company will accept up to 10 credit card numbers/amounts to pay for the
order. Nothing ever goes "into the hands" of the upline (other than the few
% commission they earn on the order).

- quote -

Not sure which "higher amount" you mean, Art. Suppose customer buys product
with $100 retail value. It costs my wife $65. She can charge the customer
anything she wants, including giving it away free. Suppose she charges the
customer $90 and the customer pays with a credit card. The company could
report $90 of gross receipts, or they could report her $25 of profit on her
1099.

We've actually been told that they will report $35, being her potential
profit if she had charged full retail, but I'm skeptical. The only "logic"
there, is that, if the customer pays my wife with cash or a check, then the
company has no idea at all what she was paid, so they will assume full
retail, which would result in a $35 profit. I would argue that since the
company didn't pay her anything at all, they have no business including
anything on her 1099. Lots of 1099s are wrong, though. I'll report the
correct number, no matter what's on the 1099.

Regardless of what they report, her gross receipts are either $90 or $25.
What I'm not clear about is whether common practice in this case would favor
one or the other.

- quote -

Yep, I will keep my fingers crossed that there will be a profit - I can't
afford to throw much money at this!

- quote -

If there was someone that I knew of that I had confidence in, I would do
that. She's just getting started, and the numbers for 2008 won't be too
complicated, once I'm clear on this one issue.

- quote -

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"Bob Sandler" <bob_usenet[at]yahoo.com> wrote in message
news:8q71k41c2jumps8i6esanp3a44fjc10u21[at]4ax.com...
- quote -

Thanks, good advice on the 1099 - I'll wait until we get it and see if it's
well documented.

On the income question, here's an example of a situation that, at least in
my mind, is still ambiguous. Suppose a customer calls her and orders $100
(retail price) of stuff. She tells my wife to charge it to her (the
customer's) credit card. My wife also wants to get some marketing brochures
from the company. She goes online and places an order with the company. The
product for the customer costs my wife $65 after her discount. The
brochures cost her $20. She supplies the customer's credit card information
and instructs them to charge $100 to the card. The company sends my wife a)
the ordered products for the customer, b) the marketing brochures, and c)
$15 = 100-(65+20).

What are her gross receipts? The "amount she actually received... from the
company" is $15, but I don't think that's her "gross receipts". You could
make a case for gross receipts of $35 and an expense of $20 or gross
receipts of $100 and expenses of $85. Either way, the profit is $15, so it
won't matter as far as the bottom line on schedules C or SE. But is there a
"proper" way to record that from an accounting perspective? If the business
insurance agent asks what my wife's annual sales are, would I include $35
form this transaction, or $100?

Note that the customer can't buy the product directly from the company -
they will always refer one to the appropriate "consultant". Only the
consultant can place an order, and the company would show a "Grand Total"
for this order of $65.


- quote -

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In article <9L%%k.67728$_Y1.43950[at]bgtnsc05-news.ops.worldnet.att.net> ,
Whit <whit_mattesonAT[at]attDOT.net> wrote:
- quote -



Like hundreds of thousands of other taxpayers, and to the chagrin of
many thousands of unlucky tax preparers, you've gotten involved in a
Multi-Level Marketing arrangement.


You need, in your own records, to keep track of inventory costs and how
much $inventory there was at the start of the year and remains at year end.


Gross receipts are most likley, depending how they set it up, the amounts
returned to you for getting credit cards, cash and checks into the hands
of a higher tier manager.

If they give you a 1099 with an amount in box 7, you need to see if it's
this higher amount or the returned amount (so-called profit?). If they
report the higher amount, then the difference between that amount and
the "profit" they return to you is deducted as a fee or commission paid.


When all is done, is there a profit or loss? If you have more than
two years out of five of loss, be prepared to prove this is a
business for profit and have a practical plan to get to be profitable.

If this is not a business for profit because you have no reasonable
expectation of making a profit, your deductions will be entered
on schedule A as a miscellaneous deduction subject to reduction by
2% of AGI, and cannot exceed gross income, which now moves to
form 1040 line 21.


It might be worthwhile to engage the services of a local tax profesional,
who has seen more MLM arrangements than anyone should have to tolerate
in one lifetime, and get advice on how to keep records, how to enter
the necessary figures on your schedules, and learn about any state and
local regulations for someone in this line of work.
--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

- quote -

It is neither of those. Her gross receipts on Schedule C are
all the money she actually received, whether she received it
from customers or from the company. In the case where the
customer pays her and she pays the company, the amount she
received from the customer is included in gross receipts,
and the amount she paid the company is an expense. In the
case where the customer pays the company and the company
sends your wife a check, the check is included in gross
receipts and she has no product cost for those sales.

Schedule C reports her gross receipts and her expenses,
including what she actually pays out for any products that
she sells. Her net income is her gross receipts minus her
expenses.

- quote -

I think you have to wait until you see the 1099-MISC. You
may find that what you "have been told" is not accurate.
Part of your confusion is that you are trying to account for
situations that may not in fact exist. When you get the
1099-MISC, if you can't reconcile the amount with your
records, then ask the company to explain how they arrived at
the amount. As you correctly said, the 1099-MISC should
include only amounts that the company actually paid to your
wife, not what they assume someone else paid her. From what
you have said, it seems that the amount on the 1099-MISC
should be just the total of the checks that they send her.

Bob Sandler

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"John H Fisher" <TaxService[at]aol.com> wrote in message
news:ghp4pt$o0h$1[at]taxservice.motzarella.org...
- quote -

Thanks... I understand that the recordkeeping is our responsibility, which
is what prompted me to come here instead of relying on the 1099!

My question (I have a lot of trouble being concise) is whether there is an
expectation, either from the accounting world or the tax world, that, for a
direct seller, Gross Receipts as reported on Schedule C should be the amount
that the end customers pay, or should be the "profit" on each sale.

I would have assumed the former, except for the fact that I've been told
that the company will be showing profit (along with a few other misc. items)
on the 1099. It's not just that "they think it should be profit", but
rather the fact that they are reporting it at all that makes me hesitate.
The 1099 is supposed to show their payments to her, right? How is her
profit a payment from the company?

Suppose she sells $100 of stuff. The customer pays her $100. She pays the
company $65. The $35 profit isn't a payment from the company, it came from
the customer. On the other hand, suppose we interpret the transaction as
the customer paying the company the $100, and the company pays my wife a
commission of $35. In that case, the $35 is a payment from the company.

Everything I've seen makes me believe that she is treated as receiving the
$100 from the customer, and that that's what should be reported as her Gross
Receipts. For example, she can charge whatever price she chooses for the
product - she isn't a sales rep, she's a reseller. It's her business; the
company usually doesn't even really know what the customer paid her. She
can collect the payment from the customer in cash or as a check (to her),
and the company will never see it. It sure looks to me like that payment is
to her, not to the company.

I also found this audit guide at the IRS:
http://www.irs.gov/businesses/small/...141724,00.html
which says, among other things (slightly edited for brevity):

"Direct sellers may receive income in several different forms, including:
a.. Income from sales - these are payments received from their customers
for product purchases.
b.. Commissions, bonuses, or percentages of income received as a result of
sales from others (commonly referred to as their "down-line").
c.. Prizes and awards received from the selling business, taxable under
IRC Section 74.
d.. Income also includes products received as a result of meeting certain
sales quotas "
"Payments received from ... customers" sure sounds like Gross Receipts
should include the entire payment from the customer, not just the profit on
the sale. But then why would the 1099 from the company include the 35%
"profit"? Seems like it should include none of the customer payment, since
it's not a payment from the company. This has me a little concerned that
I'm thinking about it all incorrectly.

By the way, the 1099 is almost guaranteed to be incorrect in this situation.
The company makes the assumption that every customer paid full suggested
retail price, then includes 35% of that in the 1099. If my wife chooses to
sell something at less than SRP, or even to give it away free, her 1099 will
still include 35% of SRP, even though her profit will be less than that.

Sigh... sorry for being so long-winded; I can't help myself.

Whit Matteson



- quote -

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

It's up to you to keep the proper records of income (Gross Receipts) and
expense!!! This would include income reported on your 1099 MISC and all
other income attributable to the business. It makes little difference how
you set up your books, as long as they properly reflect the income/expense.
If the 1099 is a gross amount (less expense) you may use that amount on Line
1 of your Schedule C. If other expenses apply, report them on the other
lines of that schedule. (No double dipping)-

You may have other issues when it comes to sales tax. If the tax is to be
collected, is it included in your billing or is it your obligation to
collect it?? You'd have to know the rules of your state to get that answer.




"Whit" <whit_mattesonAT[at]attDOT.net> wrote in message
news:hPI%k.65343$_Y1.53302[at]bgtnsc05-news.ops.worldnet.att.net...
- quote -

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

My wife has recently become involved in a network marketing (AKA direct
sales) business. She has no inventory - she takes orders from her customers
and submits them to the company, who then ships the product either directly
to her customer, or to her for personal delivery to the customer (especially
if she combines orders from several customers and submits them as one big
order). The company charges her 65% of suggested retail price (SRP); she is
free to sell the products for whatever she wants, but for simplicity, lets
assume for the moment that she always charges SRP.

She can pay the company using her own credit card (and collect checks or
cash from her customers), in which case she would pay her 65%-of-SRP price
to them; or she can pay them by providing credit card numbers for one or
more customers and specifying how much to charge each card. Note that in
that case, the total charged to customer credit cards would be SRP, even
though she only owes them 65% of that. When that happens, the company sends
her the difference in a check at the end of the month.

My question is whether standard practice in this kind of setup would be to
show her gross income/receipts as a) what the customers payed (SRP), with
her product cost as an expense, or b) her profit on the sale (35% of SRP).

We have been told (but won't know until we get it) that her 1099-MISC from
the company will include her (presumed) profit of 35% of SRP for any sales
to retail customers (along with commissions based on sales by her downline),
even if she chose to charge some of them something less than full SRP. That
implies to me that the company believes that IT is paying her that 35%,
since they are reporting it as a payment on a 1099-MISC that they issue.
That strikes me as odd - it seems like that profit actually comes from the
customer, not from the company. The fact that the company would put the 35%
on her 1099-MISC seems to characterize the transaction as being between the
company and the end customer, with my wife being paid what amounts to a
sales commission of 35%, in which case it seems like that would be her
income. But, the fact that she can set the price of the product would seem
to characterize the sales transaction as being between HER and the end
customer, so that her income would be the retail product price, and she
would have an expense equal to the 65%-of-SRP that the company charges her.

Adding to the confusion is the fact that, even if she sells the products for
90% of SRP, in which case her profit will only be 25% of SRP (instead of
35%), her 1099-MISC will include 35% of SRP. Of course, in many cases, the
company will have no idea what she charged the customer, so they couldn't
possibly report the correct profit on the 1099. I understand that her
Schedule C should report her income, not "what it shows on the 1099-MISC";
in fact, that's why I'm asking this question, so we can keep the correct
records for Schedule C reporting, no matter what's on the 1099.

Is there a "standard" way to handle this sort of business?

Whit Matteson

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >