Most Mary Kay consultants are considered independent contractors and should report business income and losses on Schedule C. The net profit or loss from business activities is then recorded on the main Form 1040. The only exception is for Mary Kay consultants who have hobby income instead of business income. They should report earnings on Form 1040, but they can't deduct any expenses due to Mary Kay work due to changes with the Tax Cuts and Jobs Act.
Hobby Versus Business
Determine whether your Mary Kay activities constitute self-employment income or hobby income. If you sell Mary Kay in a businesslike manner with an intent to make a profit and have made a profit in at least three of the past five years, it's self-employment income, and you must complete Schedule C.
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If you're not profitable and aren't putting in the time and effort to become profitable – and you don't actually depend on income from Mary Kay for your livelihood – the IRS considers any sales to be hobby income. If it's a hobby, report income on line 8 of Form 1040. You currently can't list any related expenses as an itemized deduction on Schedule A.
Consider also: Form 1040: What You Need to Know
Calculate Your Revenues and Returns
Mary Kay consultants with self-employment income are actually business owners. Sole proprietors should report all business income and losses on Schedule C.
Start by calculating your total Mary Kay revenues from the year. This is the total amount of cash you've received from customers who purchased Mary Kay products from you. List total revenues on line 1. If you issued returns to any customers, list that amount on line 2.
Consider also: What Is a Schedule C Form: Who Needs to File & How to File
Complete the Cost of Goods Sold
Since you're reselling physical products for your business, you must complete the Cost of Goods Sold schedule in Part 3 of Schedule C. To calculate your cost of goods sold, start with the value of beginning product inventory, add any purchases and subtract the value of your remaining inventory at the end of the year. The difference is your cost of goods sold. List the cost of goods sold calculated on line 42 of Part 3 and on line 4 of Part 1.
Deduct Other Expenses
As an independent contractor, you can deduct other expenses associated with selling Mary Kay products. The cost of any advertising and office supplies are also deductible. If you traveled to show Mary Kay at parties, trade shows or homes, you can deduct the cost of travel to your destination. The IRS allows taxpayers to deduct 56 cents per mile driven as of the 2021 tax year. This will rise to 58.5 cents in the 2022 tax year.
List these expenses in Part 2 of Schedule C. After completing the form, record the net profit or loss from line 31 onto line 3 of Schedule 1, where you'll report any other additional income and adjustments. After completing the other steps of your tax return, you'll need to include Schedule C with the completed Form 1040.
Consider also: Business Use of Vehicles: Are Car Expenses Tax Deductible?