Thursday, June 24, 2010

Amway - Tax Refunds Are Profit?

One of the things that I have observed is how IBOs are so misguided by their upline, that they think that their business losses, which result in a tax refund is somewhat like a profit, or that they are getting a free pass with the government footing the bill for their standing orders and functions. In the past, IBOs have been audited and had many business deductions disallowed because the tax department ruled that they were not truly running a business, but participating in a hobby called Amway.

I know that most IBOs are deducting the cost of their training materials on their taxes, but the issue at hand is whether the training materials are resulting in increased sales for your business. If you are running a "buy from yourself" business, then there is a strong possibility that your expenses may not be valid deductions come tax time. If you are not selling products to customers for a profit, then there is a chance that your expenses are not valid deductions. It would be sad indeed to be audited at tax time a few years after you have been an Amway business owner, only to find out that your expenses are not valid and that you may owe tens of thousands of dollars in back taxes.

Another apparently common mistake of IBOs is to think that their business expenses are basically free from the government because they may end up with a tax return. Your expenses are deductible from your taxable income. Thus if you had $10,000 in business expenses, your return would depend on your tax bracket. If you are in the 15% tax bracket, then $10,000 in expenses would get your about a $1,500 tax return, depending on other deductions you may have. But IBOs get duped into thinking they made a score and now get back $1,500 when they may not have had a refund in the past. Obviously in this case, the IBO would have been better off saving the $10,000 and never getting involved in Amway. Some IBOs proudly proclaim their refunds as basically a windfall, almost like it is a profit. That is truly scary.

Folks, there is no free ride. If you are spending money on legitimate business expenses with an intent to make a profit, then there is nothing wrong with that. But if you are traveling to conventions hoping to learn the secret of sponsoring more downline, you could be walking on thin ice should the IRS ever decide to audit your business. There have been many cases in the past where not only did IBOs lose their shirts due to the business support materials they purchaed, but they got double whammied later when the IRS disallowed tax deductions, leaving them in financial ruin. I truly hope you aren't on that path.

Check out this link:
http://www.apollowebworks.com/amway/irs.html

"TRAVEL AND ENTERTAINMENT have always been areas of abuse. Sections 162, 262, and 274 are always applicable and sometimes Section 183. Since most of the travel is primarily to attend social gatherings for entertainment and motivational purposes, any real business purpose is suspect. Unless the taxpayer can show that attending seminars, meetings, etc., meets the requirement of Section 162, the travel should be disallowed. Amway people have been unable to show that attending these meetinqs increased their sales. The agendas of these meetings appear to be primarily for entertainment, socializing, and listening to motivational speeches. The meetings have nothing to do with promoting the sale of Amway products to the general public. In fact, Amway distributors are specifically warned aqainst mentioning either Amway or selling when recruitinq potential downline people. Since it is not likely that the taxpayer will increase his sales by attending these functions, then there is not a reasonable business purpose for the trips"

42 comments:

Anonymous said...

you got that right!

Obvious said...

Either I'm confused or this is poorly written.
A tax refund is if and only if you get a check from the IRS. This happens in work because the IRS already took out taxes. In Amway there are no deductions its self reporting. So If I report 10,000 in expenses and 0 in sales I don't get a check in the mail because I fall under the 0% tax bracket and not the -15% tax bracket. Is somebody high to believe there getting 15% from the IRS when there business ran up a loss? Is there Any Amway person who believes they tax the IRS or is this poorly written? Business Owners do not get checks from the IRS they can only write out checks for making a profit. Does anybody not understand that? The IRS doesn't foot the Bill or Even part of a bill if you lose money. Does anybody not understand this? If you don't please re-read this instead of figuring out how to make money via Amway

Aravind G said...

Your link is garbage. There's nothing official under the link, just personal stories and opinions coming from a guy who thinks that Amway causes physical, psychological and spiritual illnesses. Mind you, there are also plenty of grammatical and orthographical errors which are inadmissible in an official court document. Certainly, IRS writes its documents in Microsoft Word/Word Perfect and uses a spellchecker unlike the guy who wrote this court mock document in Notepad. Let's see some of these errors:

'In fact, Amway distributors are specifically warned aqainst mentioning either Amway or selling when recruitinq potential downline people.' (aqainst, recruitinq)

'If the vast majority of purchases is for personal use, then the car expense should also be personal.' (should read 'majority of purchases are for personal use')

'Taxpayers frequently write off long distance calls to friends and refatives claiming they were trying to sign up downlines or sell product' (refatives)

'TAPES, TOOLS, ETC. are a few of the categories used to write off motivational tapes and baoks.' (baoks)

'A loss simply means that you have spent more money thatn you have made in the business during the year.' (thatn)

'The IRS give you the first two years in business before it expects your business to become profitable.' (should read 'IRS gives you')

'In other words, the biger your Amway loss, the larger your tax refund will be.' (biger)

Just because the word IRS appears in the 'The IRS Position On Amway' title, that doesn't make the document credible. I could write more sophisticated bullshit without grammatical and orthographical errors and make the document appear genuine. Whoever wrote that document on IRS is nothing short of a loser and you're an even bigger loser for promoting it. Have a nice day!

Joecool said...

Obvious, the Canadian dude is combining his job income with his Amway business income. He is therefore getting a tax refund, possibly intead of breaking even, because of his expenses in Amway such as functions and other support materials. If you follow the blog, that is quite "obvious."

Joecool said...

Anonymous June 25,

The article, while you may not like it is the painful truth. Many Amway IBOs think they are using legitimate business deductions when in fact, attending functions are more like social events and do not result in increased sales.

Have you made a profit in Amway? I bet you have a net loss like most IBOs.

rlaurens said...

Is this official enough for ya?

http://ustaxcourt.gov/InOpHistoric/Ollett3.SUM.WPD.pdf

The issue for decision is whether petitioners engaged in their Amway/Quixtar activity during 1999 and 2000 with the objective of making a profit within the meaning of section 183.

Anonymous said...

Any business owner (be it the greatest) can fall into debt. The author needs to be clear on one aspect. Amway is a strict franchisee business, and anybody reading this can just explore how costly any other so-called franchise is.

Treat it as a business, write down the expenses and benefits (any franchise has incubation period - sometimes up to 5 years to break even). The tools, well, any entrepreneur of the world you talk to will tell you how books help them. And, the same books might not've motivated some other entrepreneurs. It is a choice. If you have plenty of capital to invest upfront, try explore other franchisees, and there too you pay a franchise fee which the franchisor takes from you to just teach you business. (I don't see a difference between him and an upline in Amway)

About tax, one will have to talk to his auditor/accountant to be qualified to talk about tax. Remember, I said it is serious business. And any serious businessman will have to have his tax consultant, etc.

Aravind G said...

This appears as an official court document however the document is only an opinion given by Judge Wolfe, not a ruling an it clearly says so:

'The decision to be entered is not reviewable by any other court, and this opinion should not be cited as authority.'

Official enough but not enough to convince me to stop building my business.

Joecool said...

Anonymous June 27th, the difference is that Amway is not a franchise opportunity and secondly, francise owners make money unlike Amway business owners who mostly lose money.

Aravind, nobody is trying to convince you of anything. If you wish to line your upline's pockets with cash, then have at it.

Anonymous said...

Obvious said:

"A tax refund is if and only if you get a check from the IRS. This happens in work because the IRS already took out taxes. In Amway there are no deductions its self reporting. So If I report 10,000 in expenses and 0 in sales I don't get a check in the mail because I fall under the 0% tax bracket and not the -15% tax bracket."

_______________________________________________


You theory falls apart after you consider that most Amway distributors hold full time jobs where taxes ARE taken out their pay.

So when you have a $10,000-$20,000 deduction from Amway losses, it CAN result in a sizable tax return.

Anonymous said...

If Amway is a strict franchisee business, the main franchisor "Amway" should do something about the average $115 income of IBOs and the percentage of 0.0001 whatever chance of making it to Diamond(Amway's own number).

If McDonald's or any other franchise type business revenue is down, it is the franchise that will come up with ways of increasing the revenue, the franchisee will not be blamed for failure.

In Amway it is always the IBO's failure, but never the business oppurtunity's or the system's failure.

Why dont the diamonds who have been in the business for decades requalify year after after? Probably they are not following their own teaching and are not CORE themselves?

Biggest joke is Kulin Desai who has been teaching to get 2 contacts every day for years and years to go diamond in 2-5 years is not yet a founder's diamond after being in the business for close to 20 years. Only reason he goes to Diamond club every year is because of the international businesses.

Anonymous said...

We have heard so many times that there are great tax benefits because of Amway business. My upline when showing the plan would proudly say he is not depressed like others, when gas prices increase because as a Amway business owner he gets to claim mileage as business expense.

What we were not told/did not know was you cannot keep claiming loss year after year. For 3 years we claimed loss of about 10-30K and got refund of 2-4K (refund from tax paid on job income). By the way the loss we claimed was legitimate business expense- Tools, Association expense, other system expense, flight/mileage/rental cars, hotel expense, money spent for food at functions catalogs, sales kits, sample products and so on. We drove on an average 30K miles/year when we were COMMITTED.

During our 4th year of filing tax, our CPA said if we kept claiming loss of 30K when making 2-4K, IRS will claim that we are treating the business as a hobby and not as a business. He asked us what was the need to spend thousands of dollar to go attend a business conference when we were making 4k? Logical question, but per system/upline you need to pay the FULL price to succeed.

Well, when i checked with upline about not being able to claim loss in the 4th year because of what CPA said, he said "Do what the CPA says", otherwise you might be audited by IRS and then the whole Line of sponsorship will be audited.

So, inspite of spending 30K for the sake of running Amway business, I ended up not being able to claim any loss, showed profit and just quit the stupid so called business.

Anonymous said...

http://www.rothcpa.com/archives/000544.php

"While such a sweeping conclusion may not be warranted, taxpayers with loss patterns like this can expect IRS trouble - especially when much of the income is from sales to themselves and the expenses are primarily travel-related. Such patterns make courts suspicious:

'Petitioners repeatedly used their Amway
activity as an attempt to mask obviously
personal expenses as deductible business
expenses. In effect they attempted to live a
deductible lifestyle. The conferences at
times of the year associated with vacation
and recreation are consistent with this
same mindset. Most importantly, petitioners
reported no significant revenue from their
Amway activity and no reason for them to
believe they ever were going to have
significant revenue from this activity.'

The moral? If you sell Amway, your profits will need to be from the business, not from the IRS."

Anonymous said...

Go build your business, stop being stupid and stop complaining. Complacency won't solve a thing!

Anonymous said...

I should go build the business so I can make the average income of $115, while spending atleast $300 on 100PV on products I would not need. Great idea

Anonymous said...

Man, I laugh seeing how stupid some people are. I once heard a Diamond saying that this business is tough enough to weed out the people who don't deserve it. Guess what, he was right on!
Listen buddy, first, why do you buy products you don't need? Look for those you do need! Maybe you use soap, shampoo, window & floor cleaner, detergent, etc? Or maybe you're just a downright dirty, stinky bastard hence, you don't need these?
Second, if you want to be self-employed and average $115/month on your own business volume, be my guest but don't complain about it being the limitation of the business! The business has no limit! If you want to make serious money, start expanding your business, show the business to others and register those who like what they see. No magic there! Way simpler but so is being stupid instead of being smart thus, it's your call. Whichever, God bless you!

Joecool said...

LOL, of course I use household products but I just get them at a fraction of what Amway charges when I shop at WalMart or Costco.

Anonymous said...

Uhmmm... does either WalMart or Costco share in the revenue with you for increasing their sales?

Joecool said...

Yes, they do. I have stock in both Costco and Walmart so I get dividends and growth in the stock value. Furthermore, I use my American express card and get up to 3% back just for shopping there with no minimum purchase. I might also add I get twice as much product in many cases, as an Amway product for the same or a lesser price.

Sucks to be you huh?

Anonymous said...

How about this Joe, hmmm? I get up to 30% back per very item I shop from Amway plus 31% back at Platinum level per Platinum business volume before other bonuses kick in at different levels. You only get 3% just for shopping at Costco and Walmart? If it was 3% per every item that you buy, that would be more don't you agree? Also, I get points which translate into dollars every time I use my Amway Global Mastercard to pay for stuff I buy anywhere in the world. So, Amway must be a really good scam business partner that MBNA decided to offer Amway a Mastercard and share in the revenue! Wow, I guess that you got it just right when it sucks to be you!

Anonymous said...

How well have your stocks been doing lately? Why don't you blog instead about how well your stocks are doing and teach others how to be as successful as you are since you have stocks in both Costco and Walmart?

Joecool said...

Anonymous 1:11 PM.

You buy a 30 day supply of double x for $52 and get back 31% (if you are platinum, which is a fraction of 1% of all IBOs) which is about $15 so your net outflow is $37. I buy multi vitamins from Costco a 90 day supply for $15.99.
Plus I get back up to 3% from American express.

Looks like it still sucks to be you. Oh yeah, I don't need standing orders, voicemail. functions and books to help me. Now it sucks even more to be you.

Anonymous said...

Don't mix the 30% discount with the 31% profitability at Platinum business level. Also you don't have to be a Platinum to qualify for the up to 30% discount, a new IBO qualifies as well! Either you misrepresent that ON PURPOSE or you simply DON'T KNOW what you're talking about because you weren't really building your Amway business. You even mentioned about 'participating in a hobby called Amway.' Listen buddy, I'm pretty tired of your crap. Until you get serious about your Amway business, keep on shopping at Costco, get your 3% back and don't even bother replying back to me, ok? I would much appreciate that.

Joecool said...

Oh yes, actually double x costs $80 but factoring in the 30% discount, and IBO gets it for $52. Yes, please keep on buyin Amway products and then keep buying standing orders so you can learn that payin more is a good deal. LOL

Anonymous said...

Cool I appreciate your website and your explanation. That actually answered my question.
I just have one question that I for the life of me cant understand.
Quitting the company means you left and stopped doing anything toward it which means you stopped collecting checks. But couldn't you
Have collected checks and done no work at all and maybe do the minimum order of i think its 50PV (maybe 100PV) and you would qualify for your check. Wouldn't you end up making money
Follow Up: Again I mean this explicitly if you eliminated business expenses completely other then for products. NO CDS, Books or other useless junk. Isn't 4000PV a lot and ends in a profit? Why didn't you just retire with like $10000 a year (still a nice side job for doing nothing) Even if your down-line sprang maybe you could keep a cash cow of like $1000 bucks a year in profit by again doing nothing

Am I completely not understanding Amway or is Someone with 4000PV quite capable of "retiring" and making money doing absolutely nothing (just collecting checks from previous work: residual income)
P.S. Sorry if I wasted your time or asked a stupid question. I never got involved with this company but again I was offered and I would like to understand your decision and of course to personally feel like I made the right decision

Anonymous said...

Call Amway and ask the questions you have. Check Amway with the Better Business Bureau and that will also help answer some of your questions. Joecool is not an expert, he is a man with an opinion and a personal story. Amway is company with a 50 year old history and $8.4 billion in sales in 2008. The 2009 figures are updated during the autumn. You decide.

Joecool said...

The better business bureau only tracks ho Amway responds to customer complaints. It has nothing to do with Amway as a business opportunity.

Anonymous said...

Better Business Bureau only tracks how a business responds to customer complaints? I'm sorry friend you don't know what you're talking about. If you were to check this link, you would be more informed and avoid embarrassing yourself

http://www.bbb.org/us/BBB-Mission/

Let me guess, Amway is a scam but gets an A rating from better Business Bureau... I'm excited man so I signed up!

Joecool said...

Our Mission:
BBB’s mission is to be the leader in advancing marketplace trust. BBB accomplishes this mission by:

•Creating a community of trustworthy businesses
•Setting standards for marketplace trust
•Encouraging and supporting best practices
•Celebrating marketplace role models, and;
•Denouncing substandard marketplace behavior


Nowhere does it say the BBB rates a business opportunity. And secondly, IBOs are Independent Business owners. IBOs are not Amway! Where's the BBB rating for Anonymous Enterprises or whatever BS name your Amway business has?

Anonymous said...

Nowhere does it say the BBB rates a business opportunity. Yes it does!

A BBB Accredited business since 07/01/1979
BBB Rating A

http://www.bbb.org/western-michigan/business-reviews/multi-level-selling/amway-global-in-ada-mi-15000624

Did you see that NOW?

Mr Million said...

Nice one Joe. Let Anonymous keep buying their overpriced products. It just goes to show how delusional some people are.

Anonymous, a discount on a product that costs substantially more is no discount at all.
Why do you bother?

Joecool said...

Anonymous, did you take stupid pills? The BBB gives a rating only for how a company responds to complaints. It has no connection with whether IBOs make money or not.

Here's what Amway says about it:

http://blogs.amway.com/amwayinsider/2007/02/07/no-quixtar-doesnt-have-a-aa-rating-from-the-bbb-but-neither-does-anyone-else/

No, Quixtar doesn’t have a “AA” rating from the BBB – it doesn’t have any rating.
There was an interesting exchange in a forum last week about Quixtar’s BBB (Better Business Bureau) rating. One person suggested that neither Quixtar nor any LOA had achieved a “AA” rating from the BBB.

And that’s true. Because the BBB does not rate companies against a scorecard and assign a rating with letters or numbers. NOTE: As it’s been pointed out in comments, some local BBBs have rating systems but West Michigan, which administers Quixtar’s report, does not. Rather, the BBB provides information on whether a company has a satisfactory record in dealing with consumer complaints and issues.

Anonymous said...

To me it doesn't matter. If the concept is clear and it allows one to make money based on their effort and dedication then so be it. Whether an IBO makes or doesn't make money, that's his problem. There are resources to help but you have to reach out, don't expect it will happen by itself. It won't. You can't police every person's success or failure, that's an individual choice. As for the overpriced products, overpriced compared to what? Your dollar store vitamins? A more expensive product usually means higher quality and in my experience, those stupid pills marketed through Amway are of high quality and do deliver a better health as they say they do.

Joecool said...

As far as I know, there is no unbiased evidence that Nutrilite vitamins are any better than the dollar store vitamins.

Anonymous said...

Yep, as far as you know but not as far as you've tried them. You haven't.

Joecool said...

I have tried nutrlite vitamins. They didn't do anything special for me. Unless you enjoy bright yellow stinky pee from taking double x.

Anonymous said...

I also enjoy bright yellow stinky pee from drinking Florida's Natural Premium Orange Juice. So what's your point?

Anonymous said...

Cool I appreciate your website and your explanation. That actually answered my question.
I just have one question that I for the life of me cant understand.
Quitting the company means you left and stopped doing anything toward it which means you stopped collecting checks. But couldn't you
Have collected checks and done no work at all and maybe do the minimum order of i think its 50PV (maybe 100PV) and you would qualify for your check. Wouldn't you end up making money
Follow Up: Again I mean this explicitly if you eliminated business expenses completely other then for products. NO CDS, Books or other useless junk. Isn't 4000PV a lot and ends in a profit? Why didn't you just retire with like $10000 a year (still a nice side job for doing nothing) Even if your down-line sprang maybe you could keep a cash cow of like $1000 bucks a year in profit by again doing nothing

Am I completely not understanding Amway or is Someone with 4000PV quite capable of "retiring" and making money doing absolutely nothing (just collecting checks from previous work: residual income)
P.S. Sorry if I wasted your time or asked a stupid question. I never got involved with this company but again I was offered and I would like to understand your decision and of course to personally feel like I made the right decision

You avoided my question so I had to ask again. I'm ignoring the amway disillusionist.

Joecool said...

Well, at the 4000 level, I was breaking even so I could have retired from Amway and made nothing.

Anonymous said...

I like you JoeCool. You are persistent and consistent. Great. Instead of reading what is written on Bathroom Walls (Internet Blogs) Why dont you Sit with a Platinum/Emerald and post all your questions to them. It will take an hour of your time. That will be much less than what you are spending here and wasting out your life. Do not bother to reply thinking I will read it, I will definitely not come back to this site and waste time. I only was reading for your named comments. Your negative reply to my comment might show your immaturity towards making "Educated Decisions". Sorry for you if you are not spending that One hour of your life now and still working for the rest of your life as compared to giving it another Shot. Just an fyi... I was talking more negative than you for atleast 20 years of my life about Amway and after spending 2 hours with one Platinum/Emerald level person, I understood started doing Amway. It took me 3 years to start making $50K/yr and after that another 1 year to get to $150K/yr and another 2 years after to get $500K/yr continued minimum income. Readers, please find JoeCool and show this person to me. On the contrary, I will tell you, go find a Platinum, he will show you his $50K. Emerald - $150K and Diamond - $500+ K/yr. Real people are visible who are doing it. Simple equation. In a class room, out of 30 Students, 10 turned out to be DrugAddicts/DropOuts, 5 with slow pace learning, 5 a little better than that, another 5 very very good and 5 the Best of the Best. Do you stop sending your kid to School as the Problem Child's are of higher number or ask to associate them with "Best of the Best" or others but not with the bad ones. Do not listen to DropOuts like JoeCool and others, Make an Educated Decision. I am not after having you joined in my team. I am after you to have better life. Good Luck.

Anonymous said...

^ wow, that was so funny i actually forgot to laugh...

Michael Modine said...

I have been using Nolimittax services for years and never found any difficulty. They are providing very convenient service, I don’t need to worry because I always got my money back every year. They are doing a really great job. Well done! NoLimitTax, I have also recommended NoLimitTax to my friends and family and they are getting back them money on time, with not any complain.