You probably do your best to remain inconspicuous, which is a good thing. But some factors are beyond your control. It’s a fact. The more money you make, the more likely you’ll be audited. Those who are self-employed, like network marketers, have a higher statistical probability of misstating their income and deductions compared to salaried individuals. Of course you’re not going to limit your income or change your business plan in order to decrease the chances of being audited! So we’ve decided to put together a target list of 13 [unlucky] red flags that spark interest from the IRS.

1. Business expenses are especially important to direct sellers. Did you know that IRS examiners often refer to home office, business travel, entertainment, and business use of an automobile deductions as the kiss of death? Why is this? Well, these particular deductions are often abused and the IRS knows to scrutinize them closely. Keep strict documentation and proper records and be ready to defend your claims!
2. Charitable contributions and casualty and theft losses. Taxpayers who donate property to charities, and taxpayers who have had property stolen or destroyed tend to overvalue it for tax purposes. The best defense to an IRS challenge is to get independent appraisal of higher-priced donated items.
3. Bad debts. To claim a debt loss you must show that the debt was legal obligation, such as a contract or loan note, and that

   you have tried to collect the debt. This is a suspicious deduction because many people try to claim debts of friends and relatives without satisfying the requirements.

4. Hobby losses. Any losses related to activities that appear to be more pleasure than business will attract extra IRS attention.
5. IRS blacklisted preparers. Make sure you hire an honest tax preparer. What more can we say?
6. Income from a barter-related activity. Although no money is exchanged in the bartering process, the IRS still considers it taxable.
7. Comparative size of deductions to each other. An item that is large in proportion to other deductions will draw more scrutiny.
8. Absolute size. A huge deduction, regardless of the accompanying deductions or the income shown on the return, will require a closer study.
9. Out of character deductions. If you claim a deduction that is “out of character” with the rest of the situation presented on your return, you are more likely to be audited. For instance, if you’re selling local products and are claiming extensive airfare deductions, it might raise some suspicions.
10. Mistakes, missing information, or incomplete forms also draws attention. If it seems to be a mistake, the IRS is likely to suspect you of trying to mislead them. Make sure to fill in all the blanks the forms require, even if it’s with a “0,” a “no,” or “not applicable.”
11. Misfits. Attempts to fit certain items into categories where they do not belong, in order to take advantage of more favorable provisions, will cause suspicion.
12. Linked items. If you claim one deduction, but do not claim another closely related one, the IRS will wonder why. For instance, deductions for property tax and mortgage interest are usually found together (unless your mortgage is completely paid). If one is claimed but not the other, the IRS is likely to notice.
13. Comparative to income and geographic area: If you claim more or larger deductions than other taxpayers in the general area with similar incomes, again, the IRS will wonder why and take a closer look.

The fact that these are red flag, target areas is not to say that the deductions are not perfectly legitimate. As long as you can substantiate your deductions, you should not hesitate to claim your deductions. What this target list indicates; however, is that companies and distributors involved in MLM activity should carefully document and support their deductions, write-offs, and business expenses.

And because multilevel marketers are home-oriented and social network-oriented in their businesses, many of their red flag deductions really are expenses; where for the average taxpayer, these types of deductions are usually personal and non-deductible.

If you want to be extra careful and possibly head off confrontation with the IRS, include explanations of any unusual items with your return. If the IRS system flags your return, perhaps an explanation may satisfy the IRS reviewer? It’s worth a shot!

We at MLM Legal wish all the network marketers, party planners, and direct sellers a happy and fruitful tax season!

Why stop here? Learn more about running your own MLM business by watching Attorney Jeff Babener’s videos!

How Do I Raise Capital to Start My MLM Business?

How Much Does It Cost to Start a MLM Company?

Visit us at www.mlmlegal.com to learn more.

• 2 million people were involved in direct selling in the U.S. during 2015.
• Those people sold an estimated $36.12 billion dollars in retail sales, an increase of 4.8% from 2014.
• 2015 revenues were higher than any other year in history.

In 2014, 18.2 million people were involved in direct selling. In 2015, that number increased by 11% to 20.2 billion people. Of those people, 28.2% were between the ages of 35 and 44. 24.9% were between the ages of 44 and 54. 20.5% of those involved were between the ages of 25 and 34. Women represent 77.4% of participates, while men represent 22.6% in 2015.

The direct selling industry continues to grow. In 2014, U.S. retail sales were $34.47 billion, and in 2015, that number increased by 4.8% to $36.12 billion. The highest sales in product group belongs to wellness products, at 12 billion dollars in 2015, around 10 billion in 2014, and roughly 9 billion in 2013. Services were the second major group of products sold with roughly 8 billion in 2015.

Geographically, the South held the highest sales at 35.7%. The West held 26.2%. The Midwest held 20.3% and the Northeast 17.5%.

Read the detailed charts for yourself at the DSA’s website.

MLMLegal.com is bustling with educational content for direct sellers and startup/existing MLM companies! Be sure to visit us often!

If you are interested in attending the Starting and Running the Successful MLM Company conference visit our conference page, view our speaker list, or get more details. All executives/owners of direct selling companies are welcome to attend. Call 800-231-2162 to register.

Our next Starting and Running the Successful MLM Company Conference takes place October 27 and 28, 2016 in Las Vegas. View our conference flyer and speaker list online. Participate in our Innovation Campaign for your chance to receive TWO FREE TICKETS to attend our next conference.

If you’re reading this blog post and the conference dates above have passed, check our website for the current conference dates.

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Hundreds of companies have gone out of business throughout the years, and some have especially been hit hard in the last recession; however, hundreds have also endured the test of time.

We constantly updating each MLM company’s information; whether it be their products, compensation plans, U.S. sales base, or mergers and buyouts. However, be sure to double check the company’s website to make sure you are getting the absolute most recent and up-to-date information. In addition, we are constantly on the lookout for newly-launched direct selling companies to profile.

Here are some of the newest additions to MLMLegal.com:

ZeroPoint Global

Super Soy Gifts (Mia Bella Candles)

ZoiVi

Varolo

We’ve prepared the MLM Company Profiles webpage for informational purposes only. We don’t endorse any company. We are simply providing an educational tool for visitors’ convenience. These profiles are a great place to get quick, easy and fast information about compensation plans, company histories, products, and the like. We are proud of MLMLegal.com‘s extensive informational and educational attributes. Although it may be easy to get lost (and sometimes it is fun getting a little lost), MLMLegal.com provides legal articles, MLM in law in 50 states, over 700 MLM company profiles, hundreds of direct selling cases, FTC updates, BurnLounge case analysis, vendor directories, news headlines, iTunes application, educational MLM videos, and so much more. Be sure to visit MLMLegal.com and MLMAttorney.com for all the information you need on the direct selling industry.

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In 2008, 91.1 percent of direct sellers were part time. That figure rose slightly in 2009 with 92.5 percent of direct sellers working part time. The statistics steadily decrease in 2010 with 91.1 percent of direct sellers working part time and in 2011 with 88.8 percent working part time.

Full time direct sellers represented 8.9 percent of sellers in 2008, 7.5 percent in 2009, 8.9 percent in 2010, and 11.2 percent in 2011.

The statistics show that the majority of direct sellers work on a part time basis.

For more statistics on the direct selling industry visit www.mlmlegal.com and www.mlmattorney.com.

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Women make up the majority in the direct selling industry as far as consultants and distributors are concerned. However, there is a slight trend of men increasing entering this niche business model. Reasons for this are uncertain, and likely complex; however, MLM companies catering to men are becoming evermore popular, such as Man Cave. Other MLM companies catering to men can be found at our MLM Company Profiles page.

And for more information, visit www.mlmlegal.com and www.mlmattorney.com.

Visit us at www.mlmlegal.com to learn more.