Tax Topics – Year End Considerations
Once again it’s time for you to organize your records for preparation of your income tax return and to begin
advance planning for next year. Some of the records your tax preparer may need, include:
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Weekly Accomplishment sheet
Pink tickets – copies of customers’ sales tickets
Picking tickets – record of your product orders from Corporate
Director’s commission schedules
Monthly analysis report by unit, if applicable
Monthly consultant statements
Receipts for auto expenses (gas, oil, repairs, insurance auto license)
Support for cost of property used in business and other business-related expenses
Annual Information Letter – prepared by the Company, outlining your commissions and the taxable
value of the various programs in which you participated. This letter was recently sent to you.
As you know, it is your obligation to file a Federal Tax Return (and Provincial, if applicable) if your total
income equals or exceeds the minimum taxable amount established by law. Questions about Federal and
Provincial Income Taxes will be answered at a local Income Tax Office, if an explanation is not available in the
tax guide supplied with your Income Tax Return.
As a Mary Kay Consultant, you are considered a self-employed person and may be entitled to special tax
deductions. Generally, it is preferable to have a tax accountant prepare your return for you. The cost is usually
small when compared to the savings that may be accomplished and is deductible on our income tax return. You
should spend time with the preparer to ensure that he/she fully understands your method of doing business and
your status as a self-employed person. This enables the accountant to claim deductions for you which otherwise
might not be evident. However, if you prepare your own return, you can obtain various publications free of
charge from any local Income Tax Office explaining income tax laws if an explanation is not available in the
Tax Guide supplied with your income tax return. The most important thing in preparing your tax return and
assuring that you have the benefit of all proper deductions is to keep adequate records of all income and
expenses. Such records are essential in the preparation of the return and substantiation of income and expenses
if your return is examined by Revenue Canada Taxation.
Income and expenses incurred in your Mary Kay career are normally reported on a special tax form, which is
provided by Revenue Canada Taxation. This form is designed especially for self-employed persons. Following
are points that should be considered in calculating your net income for tax purposes.
1. Income
The calculation of the gross receipts made during the year is the first step in preparing your income tax
return. Totaling your pink tickets or your Weekly Accomplishment Sheets can do this. Income also includes
the following: car programs, dovetailing prizes and awards, and recruiting commission less sales returns.
Any recruiter and director commissions received and the fair market value of Company prizes and awards
received during the year, should be reported as other income.
The total of these items comprises total income from which all costs and business expenses are deducted. Be
sure that in the calculation of your business income, hostess credits and charge card discounts are not
deducted more than once. For example, if cost of goods includes the cost of hostess credits (Section 1
products), they cannot be deducted again as a business expense.
BUSINESS EXPENSES
Highlighted below are a number of the major costs and expenses that may be applicable to your business.
2. Cost of Goods Sold
The primary deduction from gross receipts is the cost of merchandise that you have sold during the year. The
calculation of your merchandise cost is demonstrated as follows:
ADD: Net wholesale value of inventory plus applicable taxes at beginning of year.
PLUS: Net wholesale value of inventory plus applicable taxes at the end of year.
LESS: Net wholesale value of inventory plus applicable taxes at the end of year.
EQUALS: Cost of goods sold during the year.
In the calculations above, it is necessary that you determine the wholesale value of your inventory of goods on
hand at the beginning and at the end of each year. Listing merchandise on hand on a consultant order sheet as
you would a regular order easily does this. If the inventory is counted a few days after year end, merely add to
the total the wholesale value of merchandise sold, based on information from sales tickets dated after year end.
3. Automobile Expenses
As a self-employed person working from your home, you are permitted to deduct the cost of operating your
automobile for business-related transportation costs, eg, to and from skin care classes. Two methods are
available for determining the amount of expense deductible: the business portion of actual expenses incurred or
a standard mileage rate.
Automobile expenses incurred during the year – gas, oil, maintenance, etc. are deductible based on a formula
which includes the percentage of business kilometers driven to the total kilometers during the year. To
substantiate this deduction, you should note in your date book each day the kilometers driven to and from
shows, unit meetings, workshops, etc.
4. Travel Expenses
This includes meals, lodging and necessary incidental costs and are deductible while the taxpayer is away from
home in the pursuit of a trade or business. The expenses must be ordinary and reasonable in amount under the
circumstances. As long as the purpose of the trip is primarily for business reasons, travel expenses are
deductible, even though the taxpayer may spend some time in sightseeing, visiting, entertaining, etc. Such
expenses however are not deductible if the trip is primarily personal in nature. A spouse’s travel expenses are
not deductible unless the spouse’s presence on the trip has a business purpose.
5. Entertainment Expenses
Generally, entertainment expenses are deductible if they are ordinary and necessary and if they are either (a)
directly related, or (b) associated with the active conduct of your business. Expenses for entertainment for the
purpose of generating goodwill are normally deductible if there is a good possibility of the entertainment
producing future income. However, no deduction is allowed for entertainment expenses to the extent that they
are extravagant in the circumstances.
Business meals can be deducted if they are held in surroundings conductive to the business discussion. In the
area of entertainment expenses, documentation of the business purpose is generally necessary. This would
include the name and relationship of the person entertained and the items of business discussed during the
entertainment.
6. Office-in-Home Expenses
The office-in-home deduction is available only where a specific portion of the home is used exclusively and on
a regular basis, as the tax payer’s principal place of business or used by the tax payer for meetings or dealings
with customers. This requirement is not met if the portion is used for both business and personal purposes.
Deductions are allowed for items allocable to space in the home regularly used for inventory storage.
7. Child Care Credit
Individuals are entitled to a tax credit for qualifying childcare expenses. Household and personal care expenses
for a dependent under fifteen, or a dependent incapable of self-care, qualify if incurred in order to allow the tax
payer to earn income.
EXPENSES THAT MAY BE DEDUCTIBLE
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Commissions you pay to others for holding a skin care class (such as 15% dovetail commission)
Bad debts (and your net cost of refunds to customers)
Postage used in your business
Seminar, Career Conference, Leadership Conference or workshop expenses, including travel, meals and
lodging
Advertising
Telephone and long distance calls
Cost of Starter Kit or samples used
Product insurance expense
Accounting costs
Stationary, business cards and other printing to support your business
Cost of gifts to promote your business
Contract labour paid to someone to assist you
Legal expense pertaining to business
Dues to professional societies
Interest paid on business debts
Office supplies
Customer entertainment (such as recruiting luncheon) – be sure the environment of the business meeting
place, eg, restaurant, etc, is conductive to the meeting’s purpose
Provincial sales taxes remitted to the Company of r sales aids and hostess gift merchandise
DETERMINING YOUR NET PROFITS
Net profit is determined by subtracting cost of goods sold and other allowable deductions from gross business
income.
As tax laws and regulations are constantly being amended or changed, you should seek the advice of a
competent tax accountant of your choosing for application of this general information to your specific
income tax return.
It should be emphasized that the information has covered only the major tax aspects of your Mary Kay career
and your status as a self-employed person. We have provided this information solely to draw your attention to
certain responsibilities and rights that you may have as a taxpayer. Taxes are, however, your personal
responsibility and the Company comments in this area not intended as tax advice concerning your specific
situation.
NOTE
If you have the Mary Kay Date Book, use the bottom of the weekly daytimer.
Use your Accomplishment Sheets every week to record your sales, hostesses and profit. This form is called our
Weekly Goals page, and it’s great for recruiting.
EXPENSE INFORMATION
Fill in this area – it helps you to keep a record of your mileage and miscellaneous expenses.
MONTHLY RECORD ENVELOPES
Keep on top of your expenses and income – file them all into your Monthly Envelopes. Identify the expense on
each receipt.