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“Autoship” – Is it or isn’t it a Tax-Deductible Business Expense?
Regarding ‘autoship’, the U.S. Tax Code is not clear on the issue of deductibility at this time and there has yet to be a ruling by th e Federal Tax Courts on the matter. That means that you must make own determination based on the codes and rulings that have dealt with similar issues and seek the professional opinion of your accountant or professional tax advisor. This article is designed to provide information that may help in that discussion.
When there is no official statement, documented reference, or federal tax court decision on the legality of any business expense, the Courts have said that the
taxpayer should use his or her best judgment, and IF an auditor should later disallow the deduction, the taxpayer cannot be assessed any penalties for having claimed the deduction.
You can, however, be forced to pay taxes and back-interest on the amount deducted if they are disallowed at a later date.
Businessdictionary.com defines ‘autoship’ as the Method employed generally in network marketing, it is a regular shipment of a product on the basis of a standing order supported by some form of automatic payment (with a credit card, for example). It is through autoship that a network marketing representative can ensure his or her commission level by meeting qualifying sales criteria during each qualifying period (usually a quarter).
The best opinion seems to be that if you are;
· engaged in marketing a company’s products/services on a regular and consistent basis (courts have ruled in the past that would be at least five hours a week),
· can prove you have intent to make a profit, and
· accurately and completely documenting your business records,
you would be conducting a legitimate Home Based Business and therefore be allowed to deduct any expenses that meet the standards set out by the Internal Revenue Code as follows;
162 (a) In general
There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business,.
In your business are you required to participate in an ‘autoship’ in order to get paid at the highest level? If so, doesn’t that seem to be an “ordinary and necessary expense”? It would seem like a logical conclusion to assume so and thus, would seem to qualify as a “Miscellaneous Deduction” under the federal tax code. The assumption that ‘autoship’ is deductible as a legitimate business expense is still open to interpretation and therefore not iron clad.
 One logical way to look at the ‘autoship’ as an ‘ordinary and necessary expense’ is that the ‘autoship’ is the means you use to pay for the many business ‘pieces’ you are provided by your host company. Things like support, training, payments, insurance, marketing tools, web sites, research and development and a whole host of other business related services may be provided you as part of your ‘autoship’ and are all necessary to running your business professionally and profitably.
Doesn’t that sound like ‘ordinary and necessary expenses’? You also have the option to take a portion of the expense as business related, say 75%. If you pay a web hosting fee that should be considered a deduction, but you also get the benefit of getting a product that you consume in some fashion and receive benefit from. Therefore, it may be more prudent to place some type of value on the business services provided and some value for personal use of the product. Think logically when you make this determination and be reasonable.
Since there is currently no law on the books or a ruling in the court regarding ‘autoship’, you should run this by your tax preparation specialist and make them aware of your decision. Let them know why you have determined that it is a legitimate tax deductible business expense and ask their opinion. If you claim such a deduction you may lose it, but if you don’t claim it you certainly will lose it, and a reasonable person would, in all likelihood, see that it was legitimate.
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