Who Is a Direct Seller?

You are a direct seller if you meet all the following conditions.

1. You are engaged in one of the following trades or businesses.
   1. Selling or soliciting the sale of consumer products, either--
      1. In a home or other place that is not a permanent retail establishment, or
      2. To any buyer on a buy-sell basis, a deposit-commission basis for resale in a home or other place that is not a permanent retail establishment, or
   2. Delivering or distributing newspapers or shopping news (including any services directly related to that trade or business).
2. Substantially all your pay (whether paid in cash or not) for services described in (1) is directly related to sales or other output (including the performance of services) rather than to the number of hours worked.
3. Your services are performed under a written contract between you and the person for whom you perform the services, and the contract provides that you will not be treated as an employee for federal tax purposes.

As a direct seller, you usually sign up with a particular company to sell its product line. The company may refer to you by one of the following titles.

• Consultant
• Coordinator
• Dealer
• Demonstrator
• Designer
• Director
• Distributor or direct distributor
• Instructor
• Manager or supervisor
• Representative or sales representative

Self-employed. You are self-employed as a direct seller if you meet the three conditions listed earlier in this section. This generally means you have to pay self-employment tax (discussed later under Business Taxes).

Employee. You are a direct seller only if you are in business for yourself. Selling consumer products as a company employee does not make you a direct seller.

The fact that you work under another direct seller does not make you that person's employee.

Recruiting. You are engaged in the trade or business of selling or soliciting if you attempt to increase the sales of direct sellers who work under you (your "downline" group) and your earnings depend in part on how much they sell. Recruiting, motivating, and training are examples of attempts to increase sales.

Host or hostess. You are not a direct seller if you simply host a party at which sales are made. Nevertheless, some information in this publication may still apply to you.

The "gift" you receive for giving the party is a payment for helping the direct seller make sales. You must report it as income at its fair market value. See Other Income, later.

Your out-of-pocket party expenses are subject to the 50% limit for meal and entertainment expenses, discussed under Meals and Entertainment, later. These expenses are deductible as miscellaneous itemized deductions subject to the 2% limit on Schedule A (Form 1040), but only up to the amount of income you receive for giving the party. See Not-for-Profit Limit, later.

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