Are Auto Ships Tax Deductible?
Why Auto-Ships for MLM’s Are Tax Deductible
To deduct or not to deduct, that is the question.
If I lined up 10 tax people in a row, I probably would get 10 different opinions. Mostly not deduct, but for various reasons.
What is an Autoship?
An autoship is a monthly order that comes automatically to you from your company. I use the word autoship as it is very common in the MLM industry.
What we are technically talking about is a minimum purchase requirement to remain active and collect overrides for your team.
The dirty truth behind autoships is that companies use them to keep their cash flow going so they can pay out commissions! Now I got that from some great reliable sources!
The way they get you to get on it is that if you want to get paid, you have to buy. Usually the monthly amount is between $100 and $200.
Most times, people put their own products on autoship and therein lies the rub. Most accountants say its not deductible because you use it personally.
While “personal use” is a buzzword in the accounting community, you have to look further into it to get to the true nature.
Let’s look at what the IRS says a deduction is….
A deduction is any cost that is ordinary and necessary in carrying on a trade or business.
Is a purchase requirement :
Ordinary – Yes, in the MLM/Direct Sales industry – 99.9% of the companies have a purchase requirement
Necessary – Yes, it is. If you want to get paid commissions for your group.
Therefore, it is a deduction! You can flush the stuff down the drain and it would still be a deduction!
And yes, it has stood the dreaded audit test – In my experience!
I put the amount spent each month under “Required Purchases” on Schedule C of 1040.