Individuals become independent sales representatives to earn an income on a full-time or part-time basis. To make money, it requires cash to jump-start a sales business and pay for related expenses involved in running its operations. You will need to maintain accurate records of your sales and organize receipts and legal documents to prepare yourself for the tax reporting season every year. Many expenses are tax-deductible and can be written off, so you want to take advantage of these to reduce your tax liabilities and lower your total taxable income.
If you filed a 2019 US tax return, make a note that the 2020 mileage rate for a business reduced to 57.5 cents per mile. The Internal Revenue Service bases yearly rates on the standard costs of oil, gas, repairs, depreciation, and other factors. Collectively, each factor can affect the amount per mile and cause fluctuations. Standard rates do not include charges for parking, toll fees, or interest you pay on a vehicle for business use.
Kinds of Personal Auto Expenses That Are Tax-Deductible
- Tire Purchases and Repairs
- Business Licenses
- Vehicle Maintenance/Repairs
- Auto Registration
- Auto Insurance
It is important to track automobile mileage for business and other expenses to claim deductions and credits on your income tax return. If you use a personal vehicle for business, the task may become tedious, separating business use from personal use. To help you track your mileage and other related business expenses, purchase accounting software or use other tools, such as FreshBooks.
Tax Write-Offs of a Small Business or Independent Salesperson
- Costs to start your sales business
- License fees to operate as an independent sales representative in your city and/or state
- Costs for purchasing inventory you plan to sell
- Materials and supplies including displays, shelves, tables, and signs
- Advertising expenses, such as ads in local and national newspapers and online media
- Home space you occupy to run your business.
- A tax professional or accountant is helpful to get you the maximum income tax benefits. You will have the responsibility of record keeping and organizing your business expenses. An expert provides tax advice, financial management, accounting, income tax return preparations, and other services. You should invest in accounting software with tax features to assign tax deductible expenses to the right ledger accounts.
How a Salesperson Can Organize Documents for Tax Reporting Season?
Your responsibility as an independent sales representative is to collect and record income and expenses and to maintain associated documents and receipts. You can organize this information using a bookkeeping application, such as Intuit, QuickBooks, or FreshBooks. A benefit of accounting software is the ability to become paperless and to scan your receipts that will automatically put in date order for easy organization. Its cloud-based technology features tools that allow you to store digital copies of your receipts and essential documents. It will save you and your tax preparer time to ensure the filing of your federal income tax returns before its deadline.
The technology you choose should have an expense tracker feature that scans receipts to record an expense. FreshBooks is an example of a cloud-based application that scans, organizes, and categories receipts for all your business meals, hotels, purchases, and mileage expenses. It will organize your financial transactions by category, date of purchase/payment, and vendor.
While going paperless is a tremendous benefit, it is inevitable to be completely paperless in your office. Important documents in their original copy, such as signed contracts and other legal agreements, should have a secured place for safekeeping. You can store significant papers in a vault or a secured file cabinet with a lock and key. To prevent loss of computerized data, you must backup your system daily and save it to a disk.
When a salesperson works independently, he or she is working as an entrepreneur and business owner. Your duties will comprise recording and tracking sales and business expenses and organizing all this information to give to your tax preparer. One of the biggest mistakes of an independent salesperson is waiting until the last minute to organize receipts and documents. Your tax expert will need this information in a timely manner to ensure you receive credit for eligible deductions and write-offs.