Accounting and Taxes
The IRS will generally consider that a business is not a hobby if it showed a taxable profit in three of the previous five tax years. Internal Revenue Service Code Section 162 allows all ordinary and necessary business expenses related to your business as a deduction. A simple illustration will help explain the IRS laws.
To start a career as an Independent Sales Agent you will incur an initial investment of $599 for Seller of Travel licensing, travel consulting advice, web site access, accounting services, tax advice, and legal assistance. The services are deductible business expenses. All other related business expenses such as inspection trips to vacation properties, costs for brochures to promote your referral sales to customers, office supplies, etc. are tax deductible. Let's assume that in your first year of business you had $1,000 in travel referral sales, $599 in Independent Sales Agent purchase fees, and $4,000 in other travel referral business expenses (rent or home office space allowance, utilities, phone, travel, meals & entertainment, etc.):
Total Income $1,000
Purchase Fees ( 599)
Other Expenses (4,000)
Net Taxable Loss (3,599)
Tax Rate 20%
Tax Savings Year 1 $720
In Year 2 you earn $10,000 in referral sales agent income and spend $5000 to experience one of the vacation properties you refer regularly. In addition to traveling free (writing off your $5000 vacation experience as a legitimate business expense), you realized an additional $5,000 profit!
According to the IRS, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business. An ordinary expense is an expense that is common and accepted in the taxpayer's trade or business. A necessary expense is one that is appropriate for the business. Generally an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit.
We fully encourage and recommend that you strive to earn a profit from your travel referral agent business. We do not recommend any deviations from the IRS rules and regulations.
Simplified Recordkeeping
GSV will record all of your sales transactions and commissions. You will be provided a 1099 at the end of each year that reflects your total earnings. This is considered Gross Sales income that you will report as income to the IRS each year. You will be able to access your sales data online.
As mentioned on the previous page, you are allowed to deduct on your tax return all ordinary and necessary business expenses. It is a good business practice to keep a record of your monthly sales income and business expenses by account or category. This will help you know your monthly business Net Profit and help you manage your business. Tax planning and minimizing taxes can also be accomplished by maintaining accurate and timely records. The method of keeping records is up to you. You can keep a running balance of each income and expense account manually on accounting paper, use a computer accounting program like QuickBooks, or have an accountant maintain your books and records. We highly recommend that you maintain at least a monthly Income Statement (Profit and Loss) and a Balance Sheet. GSV associated business partners can provide full accounting and tax services for you for a discounted fee.
Some examples of deductible business expenses include, but are not limited to:
Auto expenses Internet/Web Service Rent
Accounting Fees Legal Services Telephone
Advertising Meals & Entertainment Travel
Bank Charges Office Supplies Utilities
Insurance Postage Wages
it is up to you to determine the type of business entity that is best for your circumstances. GSV associated business partners can provide you business entity and legal advice for a discounted fee. Business entity considerations include Sole Proprietorship, Partnerships, Corporations, and Limited Liability Corporations or LLC's.