I earned commissions as an Arbonne Consultant. Most were for items purchased for personal use. Where do I deduct this income amt from schedule C, & what do I call it?

[hineskh]

I purchase health products under my husband's name--he is listed as a client, but we both consume the products daily. (protein shakes, skincare, etc.) The products are paid from my checking account.

[hineskh]

I AM an Arbonne Consultant. I did make commissions that are reportable as income on Schedule C. As an example, I made $10,000 in commissions, but $8500 of those commissions were on sales to me. (comes out of my checking account). The $8500 would not actually be income to me, it was just my discount being sent back to me. I don't know what to call this when I subtract it from my business income, or where exactly to list the amount.

[DianeW]

The purchases from Arbonne that are for personal use are not part of the tax return.  If you are not in the business of being an Arbonne Consultant, engaged in the activity for a profit making venture, then this is hobby income.  The income and the expense should be listed under hobby.

Please use the information below to enter your hobby income and expense.  Keep in mind:

1. that the hobby expenses are used only if you can itemize deductions and are further limited in the miscellaneous expense category by 2% of your adjusted gross income (AGI), and 
2. that all hobby income is taxable regardless of whether the expenses are used on the itemized deductions (if the category is too low or standard deductions are used).

1. Sign in to your TurboTax account.
2. Click on Federal Taxes tab.
3. Choose Wages and Income.
4. Scroll down to Less Common Income and click Start to to right of Miscellaneous Income, 1099-A, 1099-C.
5. Click Start to right of Hobby income and expenses.
6. Click the image attached to enlarge and view for assistance.

[hineskh]

I AM an Arbonne Consultant and sold products as a business venture, not a hobby.  I did make commissions that are reportable as income on Schedule C. As an example, I made $10,000 in commissions, but $8500 of those commissions were on sales to me. (comes out of my checking account). The $8500 would not actually be income to me, it was just my discount being sent back to me. I don't know what to call this when I subtract it from my business income, or where exactly to list the amount

[DianeW]

@hineskh On Schedule C use the steps here and then enter your cost of items withdrawn for personal use. These figures represent the cost of the products not your commissions earned on those products.
1. Select Self Employment Income and Expenses
2. Edit, then select "Add expenses for this work"
3. Select Inventory
4. Continue to review the inventory and purchases section
5. Click the images attached to enlarge and view for assistance.

[SMoran]

I am an IC for Arbonne and I make purchases for personal use only (I don't actively sell to others) HOWEVER, I do have a few friends who signed up as preferred clients under my account and because they make purchases for personal use as well, I get paid commissions.  The amount that was reported on my 1099-NEC was just over $6K which includes these commissions.  Is this still considered HOBBY INCOME?

[LinaJ2020]

No, it is not a hobby income.  You are still considered as self employed.  When you received an nonemployee compensation on a Form 1099-NEC, the IRS treats you as self employed.  You are required to file a Schedule C.  If you continuously generate a net loss for several years, the IRS might consider you having a hobby not a business. 

You will need to enter the information in both Form 1099-NEC and Schedule C sections.  You would start from the 1099-NEC section under "1099-MISC and Other Common Income".  You would then follow prompts to tell the program you are filing a Schedule C.  As it creates a Schedule C for you, you will need to go to the Schedule C portion separately to confirm your income amount, add related expenses and complete required information. 

In TurboTax online, here are the steps: 

• Sign into your account, select Pick up where you left off
• From the upper right menu, select Search and type in 1099nec and Enter
• Select the Jump to 1099nec
• Follow prompts to complete the section

Then 

• From the upper right menu, select Search and type in schedule c and Enter
• Select the Jump to schedule c
• Next screen, "Your 2020 work summary" under your self employed business, select Review
• Continue to enter related expenses and other required information

To learn more about hobby and business, click the IRS link here:  https://www.irs.gov/newsroom/hobby-or-business-irs-offers-tips-to-decide

@SMoran

[SMoran]

OK so even though I don't have any "business" expenses to write off (I don't treat this as a business, I just buy for my use), I still need to go through all this?  I can't really be operating at a loss when I'm not spending any "money to make money", I'm just buying products from Arbonne through my personal acct.  Confusing but OK.  Thank you for your help.  Appreciate it

[ColeenD3]

If you do not have a profit motive, then it is not a business, it is a hobby.

Business or Hobby? Answer Has Implications for Deductions

The Internal Revenue Service reminds taxpayers to follow appropriate guidelines when determining whether an activity is a business or a hobby, an activity not engaged in for profit.

In order to educate taxpayers regarding their filing obligations, this fact sheet, the eleventh in a series, explains the rules for determining if an activity qualifies as a business and what limitations apply if the activity is not a business. Incorrect deduction of hobby expenses account for a portion of the overstated adjustments, deductions, exemptions and credits that add up to $30 billion per year in unpaid taxes, according to IRS estimates.

In general, 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.

In order to make this determination, taxpayers should consider the following factors:

• Does the time and effort put into the activity indicate an intention to make a profit?
• Does the taxpayer depend on income from the activity?
• If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?
• Has the taxpayer changed methods of operation to improve profitability?
• Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?
• Has the taxpayer made a profit in similar activities in the past?
• Does the activity make a profit in some years?
• Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity

[ColeenD3]

Prior to 2018, hobby expenses were deductible as itemized deductions on Schedule A.  Deductible hobby expenses were limited to the amount of hobby income as a hobby could not create a loss and reduce your taxable income.  TurboTax asks this information in case the law changes and allows the deduction again. Entering your expenses does not reduce your tax under current tax law.