Amway - Tax Information for Direct Sellers
Disclaimer -- I am not a tax advisor and I am certainly not attempting to provide anyone with tax advice. If you have any questions about the information on this page, please consult a qualified tax advisor or the Internal Revenue Service.
For my readers outside the United States...the information on this page applies to the tax laws in the United States only.
Recently I discovered the United States Internal Revenue Service has provided a publication that provides tax information specifically for Direct Sellers. The information in this publication applies to Multi-Level Marketing businesses such as Amway.
The following information comes directly from Publication 911 - Tax Information for Direct Sellers. If you are considering starting or currently operating a Multi-level Marketing business, I would highly encourage you to review this publication. It is my opinion that a business person would want to familiarize themself with the tax laws as it applies to their business.
Since this publication is available online, I am not going to repeat it here. This publication gives examples of what can and cannot be legitimately deducted as a business expense in the following catagories:
If you are deducting business expenses from the categories above on your tax return, you owe it to yourself to read the tax laws and make sure what you are deducting is legitimate. I doubt if the IRS will accept "my upline told me it was OK" as an excuse if you are ever audited. You are the one who may face penalties and interest, not your upline.
There is one topic that I am going to discuss on this page and that is the "Not-for-Profit Limit." Here are some quotes from this section"
Obviously the goal of any business is to make money, but if you are treating Amway as a "social club" and writing your expenses off your taxes, you may wish to consult a tax advisor or the IRS and find out if what you are doing can legitimately be deducted on a Schedule C.
The last sentence from that quote should make most Amway distributors squirm. Most organizations do train people how to retail, but rarely are the rules and regulations that require retail sales enforced. Some organizations even openly admit all they do is buy from themselves and find others who do the same. Amway has also freely admitted they do not monitor or enforce these rules to two reporters -- Greg Garland from The Advocate in Baton Rogue, LA and also Ramjee Chandran from The Bangalore Magazine in India.
Some people do retail products. For those that don't and still write their expenses off their taxes, you may wish to consult a tax advisor or the IRS and find out if what you are doing can legitimately be deducted on a Schedule C.
One other fact that will trigger the "Not-for-Profit" limit is if your business does not show a profit in 3 out of 5 years. So if you are showing a loss year after year after year, you may wish to consult a tax advisor or the IRS and find out if your expenses can legitimately be deducted on a Schedule C.
If the not-for-profit limit applies, you are limited to the deductions allowed on Schedule A (Form 1040). See Limit on Deductions and Losses under Not-for-Profit Activities in chapter 1 of Publication 535 for information on how to figure your allowable deductions.
Please remember that since you are in business for yourself, it is your responsibility to ensure that the deductions on your tax return are legitimate. You are the one who may face penalities and interest if it is not accurate.
www.irs.ustreas.gov