Run it as a Business
Because it IS a business
[please note: The information presented within this website is provided by Aunty for educational and entertaining purposes only and is not intended as, nor should be relied upon as tax, legal, medical, or investment advice. Please seek professional guidance when making your own decisions.]
Nerium International opened its doors for business in August 2011. It really took off in Hawaii in January 2012, and many many Hawaii brand partners have had their incomes substantially increase since then, and might not know the ins and outs of running a successful business, so Aunty is giving it a shot here. [note: running a business that is unsuccessful is easy since income is either non-existent or negative, so this is for the brand partners that are making income or are committed to make income.]
Aunty highly recommends that you get a FEIN, form a business entity that is not really you, and that you open a separate checking account in that business name.
It’s a great business but….
First of all, if you have income or have been compensated with product, bonuses, etc. that exceed $600 in a calendar year, you will receive a 1099 from Nerium International. All of your compensation will be considered income and this income will be filed on your tax return (personal or corporate depending how you file). ALL taxes that are owed to the IRS and your State Tax Department are YOUR responsibility and have not been withheld or paid for by Nerium International. You are your own business and must act like one.
Your business activity – income and expenses – will be noted on Schedule C, and the net profit or loss will be reported on your tax return on line 12, or you can file as a S-Corp. Use a good tax attorney to form your S-Corp (you can be a LLC operating as an S-Corp) and a good CPA to do your taxes. Aunty and Uncle use Michael Bowman for our legal stuff and Diane Sandlin for our taxes. [note: Michael Bowman will be teaching at a 2 day Asset Protection and Tax Relief seminar on February 18 & 19, so stay tuned and Aunty will post more info as we get closer to it. HIGHLY recommend anyone in business go to learn.]
Some brand partners in Nerium might be in for sticker shock when they get their 1099s because Nerium Gives Back bottles, Lexus payments, iPad bonuses, 3UR Free bottles, bonus checks, all expense paid trip to Cancun and generous commissions will be included in on your 1099, and filed with the IRS under either your social security number or EIN number (if running it as a business entity).
You’ve never seen anything like this before, so….
2012 will probably be the very first year that Hawaii Nerium brand partners see that kind of income, and since the end of the year is coming up really fast (today is December 5th as Aunty is typing), getting your house in order is critical prior to the end of 2012. Critical, but you can always fix your filing status in the future, though Aunty recommends you do so ASAP.
Something you cannot avoid – Taxes
It is very important that Nerium brand partners who have been making thousands of dollars in commissions and receiving uku plenty free bottles and bonuses have been putting aside at least 35% of that in a savings account because they will have tax liabilities when they file their 2012 tax return. These taxes will be big and consist of federal and state income taxes as well as the FICA (Medicare and Social Security) taxes of 2.9% and 10.4% which is more than double the amount your employer used to take out of your paychecks. The reason is that you are now earning “self employed” income, so you are also paying the employer’s share of those FICA taxes and not just the employee’s share.
Since 2012 is the first year that you have earned substantial income, you actually do not have a 2011 to base your tax liabilities on, so NOT paying into Federal and State estimated taxes is acceptable. However, 2013 will be the year that you should make quarterly estimated tax payments for your 2013 tax filing. These estimated taxes are due in April, June, September, and January with Federal form 1040-ES and Hawaii State forms N-1. Some states (like Nevada and Washington) do not have state income taxes so you get a break on State taxes.
Another tax to pay is Hawaii state and city county general excise tax of 4.5% on a monthly, quarterly, or semi-annual basis with form G-45. An annual form G-49 is filed at the end of the year to recap the year’s activity.
Be an Entity with a FEIN
What does Aunty mean? It means you are keeping the business part of your life separate and distinct from the personal income earning part of your life. If you have a job and are paid by an employer, you get wages with taxes withheld and a w-2 at the end of the year. You don’t get to deduct much other than mortgage interest, child care expenses, donations, and not much else.
When you have a business, you can deduct education expenses (if related to your business activity), travel, entertainment, supplies, auto mileage, cost of goods sold, promotions, advertising, marketing materials, cost of start up, etc. Aunty highly recommends that you use a sharp CPA (we use Diane Sandlin in Kailua) to file your taxes and that you keep all your receipts as well as use a good accounting program to keep track of all these comings and goings of your business monies. Constant inputting of what you make and what you spend in a good business program such as Quickbooks (or Deductr that the Nerium Edge provides) is a good habit that you will be thankful for when it comes time to send the numbers to your accountant.
Setting up your Hawaii business
First thing to do is to register a business with the State of Hawaii. With the many improvements in the system, it is now very easy to do this, and the easiest way is on-line.
Go to Hawaii.gov and click on the “Business” tab, and go to “Starting a Business”. For your Nerium distributorship business, you can skip Steps 1 and 2 (Research the Market and Create a Business Plan) and go straight to Step 3 – Choose a Legal Structure.
The easiest (but not the recommended) way is to form your business as a sole proprietor. The problem with this is that the IRS will not issue you an FEIN (Federal Employers Identification Number) if you are a sole proprietor. It is super cheap to start a business in Hawaii as a sole proprietor. $25.oo to open, and $12.50 annual renewal. Yup, cheap!
BUT, spend $50 more (so $75 to open) and form a business entity such as an LLC. A C-Corporation is Aunty’s flavor of choice but involves a little bit more of documenting annual director meetings, having corporate documents and an often misunderstood reputation of double taxation.
For Nerium brand partners just starting off that don’t have HUGE start up costs (cost of premier success pack is not huge) and don’t have the ability to offset their substantial Nerium income, consider forming a LLC, single member, disregarded. You could be the registered agent, and your home address can be the registered address on record. Fill out the online form, pay, and whoosh! you are a business LLC registered in the State of Hawaii.
Aunty has used her favorite Las Vegas attorney Michael Bowman of Boss Office to form her entities, but you can do a very simple one using the forms online while filling out your Hawaii State business registration for an LLC. C-Corps are a bit of a different animal (but has really great write-off-able traits) and they really do need a knowledgeable attorney to form the corporation, as well as support with recording meetings. [check out BossOffice.com for really good videos on this kind of issue as well as tax and other issues. Aunty uses Boss almost exclusively.]
Sometimes the hardest thing about forming an LLC or corporation is choosing the name you want to operate as. In this business of Nerium and network marketing which is all about personal relationships and interaction, the “veil” of protection of anonymity is moot for LLCs, so it is perfectly fine to use your name followed by “LLC”. Or, you can pick a name that is special to you so long as someone else doesn’t have that name registered (you can do a business name search on Hawaii.gov.)
After you have finished the business registration, you will need to obtain a Hawaii General Excise Tax number by filing form BB-1 and a $20 one time filing fee.
Now the IRS part
Once you have your business entity name as an LLC, go to IRS.gov and click on the “I need to apply for an EIN” and then click on “Apply Online Now”. Electronically fill in the form with the proper spelling of your LLC and answer the questions about it being a single member, disregarded LLC, and you will instantly be given an EIN number if the IRS office on the mainland is open. Easy shmeasy! Online applications can be processed during the day, and they are closed at night and on weekends/holidays.
Print out your EIN sheet for your records. It can also be sent to you via regular mail.
Now you are legally and officially in business as a business entity!
Open a business checking account
You now have your new FEIN letter from the IRS and your State of Hawaii articles of organization (this is basically your application form which you can download from Hawaii.gov for $3, or if you had actually filled it out and taken this to the State DCCA (Dept of Commerce and Consumer Affairs) in downtown, you will get a original stamped and approved copy.) Show these to your bank in order to open a business checking account.
Aunty’s favorite bank and branch is Bank of Hawaii’s Waialae Kahala branch – a nice round building bordering Kahala Mall and McDonalds. Please see branch manager Davin Nakasato (and ask him for an umbrella because Aunty said so). He or one of his fine associates can whip through the process of opening a new business checking account, maybe even with free checks (ask for the duplicate kind)! Aunty’s favorite business bank officer there is Israel Avilla, so look for him to set you up with business stuff!
Nerium’s commission facilitator is Paylution. As our weekly and monthly commissions are earned, they are loaded (don’t you love that word?!) into our Paylutions account. You could leave all your commissions in Paylutions, or you can have it deposited into a bank account that you have set up. You can now designate your business checking account as the account into which you can transfer your funds. All of your commissions count as income and will be reflected in your 1099 from Nerium at the end of the calendar year.
If you sell your bottles of Nerium to retail customers or sell any Nerium products, you will deposit the sale into your business checking account. Keep track of every deposit by noting it on the checkbook register (amount and what it was for), or entering the transaction in Quickbooks, Deductr, or whatever financial software program you use.
Now that you have a business checking account dedicated to your Nerium business, use your checks to pay for your business expenses. State g.e. (general excise) taxes, seminar costs, meeting costs, etc. can be used as write offs. If you are buying more merchandise from Nerium such as magazines or blitz packs and you are using a credit or debit card, pay off the credit card accounts every month with your business checks. [best practice: have a dedicated credit card that is only used for Nerium business expenses.]
In general, your deposits are your income or sales, and your checks are for your expenses or the cost of doing business.
Aunty has brand partners in Vegas and flies up quite often to help them with their Real Results Parties, attend Regional events, or just to give support and meet with their people or prospects. It is critical that leaders support their team, because the team supports our business. Because at least 4 hours in a day is spent on building and supporting Aunty’s Vegas team, the airfare is able to be taken as an expense on Aunty’s tax return on Schedule C.
Aunty will have brand partner trainings for her team at her office or home, and ask all brand partners to attend. If the Vegas team members do attend Aunty’s or Nerium’s events and/or trainings, their airfare can be written off as a business expense on their Schedule C of their tax return – so long as they can prove that they were there (take a picture, show your notes, etc.)
You can also deduct the cost of driving to/from/for business events, meetings, meet ups, Real Results Parties, client visits, deliveries, etc. IF you keep a really good written or documented log of the day, time, place, and # of miles on a daily basis. This year, the IRS will allow you to claim 56.5¢ per business mile – which is BIG! You could also take that expense if you have a vehicle that is only used for business (i.e. company truck) but for us Nerium people that use our car for both personal and business purposes, that 56.5¢ per mile can be a very nice deduction – 10 miles to Coach Deb’s house for training every Monday can equal $5.65 x 52 weeks = $293.80, and for Aunty, that is one way!
Expenses are the absolute best bonus when you have a business – because these offset your income so you pay less taxes on your 1099 or earned income. Go crazy, but not too crazy.
As a business, you can even hire your children and pay them. Their pay can be written off as a business expense – and if they are under 18, you do not have to pay Medicare or Social Security taxes on their wages! If they earn wages, they qualify to open an IRA (or Aunty’s favorite – a Roth IRA) and start putting away money for their retirement!
Study Schedule C (you can find it on the IRS.gov website or get a form from the tax department) and look at the line items that you can deduct. It is a wonderful benefit to be able to adjust your income with these deductions, so go for it!
Our government and the IRS actually rewards us for having a business by allowing us so many ways to save on taxes.
For now, that’s it. Aunty is sure there is more and will update as she remembers or comes across more info on running your Nerium business as a business.
Remember to keep good records of your deposits and your expenses, file your taxes (estimated, general excise) on time, learn a bit about bookkeeping and accounting. Note that your personal bottle of Nerium that you use every night is NOT a business expense and falls in the personal use category.
Aunty wishes you the best of the best in your new business venture. In a few years when you are in the glorious passive income mode of regular and steady commission deposits and driving around in your Nerium-paid-for-Lexus, give a toot to Aunty and she’ll toot you back!