Amway Business Math?

[Joecool]

I came across this blog and while I've seen similar posts by Amway business owners, this one was interesting because of the detail and the passion the blog author has. In a nutshell, he lost money in Amway but calls it success because after he received his tax refund, he's now claiming to have a net profit. It's amazing what these Amway/WWDB leaders can get people to believe.

https://transparencyofadreamer.wordpress.com/2014/04/24/losing-in-amway/

Below are excerpts. The blog owner claims to have made a net gain due to a tax refund. He doesn't explain how he arrived at that refund but apparently his losses in Amway lowered his tax liability for whatever income tax was already withheld from either his paycheck (job) or from paying estimated taxes in advance for a business or some other venture. It's quite scary and illustrates how some people can hang on in Amway for so long even when suffering losses. The IBO's are programmed to "think" they actually made money!

Based on what they have taught me, even though I barely had any increase in my overall organization (ie: I was pathetically lazy, didn’t put any work in and barely increased the size of organization – #sadface) I STILL DID NOT LOSE MONEY!

2013 total Cost Run Down:
Communikate: $443.40
Digital Delivery: $300.00
Premier Membership: $599.40
Major Functions: $595.00
Major Function Hotels: $750.00
Business Support Materials: $240.00
Total Business Cost: $2927.80

Lets bring it all together here, folks.

Total Amway Payout in 2013: $2112.36
Total Cost To Run Business: -$2927.80
= $-815.44

Just like I said last year – “Oh No! I’ve been scammed! I’ve lost money! My upline lied to me! I didn’t put in any work to sponsor anyone this last year and its everyone’s fault but mine! The business doesn’t work! What a total scam!!!”

Hold on now Mr. Negative – Due to running my own business in a country that incentivises business owners to run their own business I received tax benefits that entitled me to a refund for the 2013 year in the amount of $2409.76. Lets do this again, shall we?

Total Amway Payout in 2013: $2112.36
Total Cost To Run Business: -$2927.80
Total Tax Refund For 2013: $2409.76
= $1594.32

So, as I wrap up I hope I made my point very clear – you will not lose money running your own Amway Business powered by World Wide Dreambuilders…. IF you are diligent with your finances, if you don’t blow your budget your coach sets with you. You WILL lose money running your own Amway Business powered by ANY training system IF you don’t have a budget, if you don’t ask for help to set a budget, if you ignore your budget etc.

If your potential sponsor is affiliated with WWDB and is doing what they are taught, you should be educated on some of the numbers I shared above in regards to cost for access to your training and mentorship system.

 

[fuelair]

Amway is the scamway.........

 

[NewtonTrino]

I've heard this kind of stuff form ambots before. Most people don't even seem to understand that a tax refund is generally based on taxes you have already paid. Unless you are getting the earned income tax credit in which case you definitely aren't making much money

 

[icerat]

I've heard this kind of stuff form ambots before. Most people don't even seem to understand that a tax refund is generally based on taxes you have already paid. Unless you are getting the earned income tax credit in which case you definitely aren't making much money

Yes, but it's a refund he wouldn't have gotten if he didn't have his Amway business. In other words, even though he's Amway business lost money, he was overall financially better off.

Having said that, according to the story he didn't actually work the business the past year, and given it's small size it's unlikely the tax authorities would look kindly on claiming business expense deductions for a business you publicly claim you weren't working.

 

[wrs]

geez........

 

[Joecool]

Yes, but it's a refund he wouldn't have gotten if he didn't have his Amway business. In other words, even though he's Amway business lost money, he was overall financially better off.

Having said that, according to the story he didn't actually work the business the past year, and given it's small size it's unlikely the tax authorities would look kindly on claiming business expense deductions for a business you publicly claim you weren't working.

He lost just over $800. He was going to get a refund whether he was in Amway or not. Yes, he got back more depending on his tax bracket but certainly this IBO is clearly wrong to say his business made money (net profit). I've seen this claimed by other WWDB IBO's which makes me think their leaders still teach this stuff.

And yeah, why did he have so many expenses ($2900+) if he wasn't working the business?

 

[Gord_in_Toronto]

He lost just over $800. He was going to get a refund whether he was in Amway or not. Yes, he got back more depending on his tax bracket but certainly this IBO is clearly wrong to say his business made money (net profit). I've seen this claimed by other WWDB IBO's which makes me think their leaders still teach this stuff.

And yeah, why did he have so many expenses ($2900+) if he wasn't working the business?

He was not making money because he was not working hard enough or smart enough so he had to attend the special courses at remote hotels that would teach him how to work harder and/or be smarter so that he would make zillions of dollars just like all the other Amway associates do . . . or sumtin like that. And those courses and hotels cost money. If only he had attended enough course he, too, would be rich! See. It's easy.

 

[Leftus]

Yes, but it's a refund he wouldn't have gotten if he didn't have his Amway business. In other words, even though he's Amway business lost money, he was overall financially better off.

That is not how the tax system works. A $815 dollar reduction in AGI does not reduce taxes by $2409.76

If we assume that at his job at Rogers he makes 55K a year AGI he would owe $9,923. By losing 815 in Amway his AGI is now 54195 and tax bill is 9,723. He lost 800 to save 200.

If he made 20K a year then you are talking about 123 gained by a reduction in AGI. 800 dollar loss in AGI has almost no impact on EITC either.

 

[tyr_13]

To say nothing in the loss of time from working the Amway 'job'. That's not worth zero dollars.

 

[Joecool]

Originally Posted by icerat
Yes, but it's a refund he wouldn't have gotten if he didn't have his Amway business. In other words, even though he's Amway business lost money, he was overall financially better off.

That is not how the tax system works. A $815 dollar reduction in AGI does not reduce taxes by $2409.76

If we assume that at his job at Rogers he makes 55K a year AGI he would owe $9,923. By losing 815 in Amway his AGI is now 54195 and tax bill is 9,723. He lost 800 to save 200.

If he made 20K a year then you are talking about 123 gained by a reduction in AGI. 800 dollar loss in AGI has almost no impact on EITC either.

In typical dishonest fashion, icerat exists to minimize the damage that Amway and it's related teaching organizations cause.

While this IBO did not suffer major losses, it is important to note that he appears to have participated in all of the recommended functions, training, listening to the cds, etc. If he did the "advertised" 8-12 hours a week that some leaders teach, then he spent approximately 400 to 600+ hours to lose that $800.

And as a cherry on top of the sundae, he was incorrectly taught that he actually made money because of a tax refund.

 

[icerat]

He was not making money because he was not working hard enough or smart enough so he had to attend the special courses at remote hotels that would teach him how to work harder and/or be smarter so that he would make zillions of dollars just like all the other Amway associates do . . . or sumtin like that. And those courses and hotels cost money. If only he had attended enough course he, too, would be rich! See. It's easy.

He's clearly treating it as a hobby, not a business, and thus not trying to get rich so your rant is pointless. As discussed in, for example, Biggart (1990) Charismatic Capitalism: Direct Selling Organizations in America and Bhattacbarya and Mehyta (2000) Socialization in network marketing organizations: is it cult behaviour?, and several other papers on the area, people legitimately get other value from the environment than simply money, or a money making opportunity. Nothing wrong with that.

That is not how the tax system works. A $815 dollar reduction in AGI does not reduce taxes by $2409.76

I don't think that's what he as claiming, and as I'm no expert on Canadian tax, neither am I. My main point is I'd be surprised if he was even eligible for the expense deductions given he said he wasn't working the business. Certainly there have been IRS cases where Amway distributors have had their deductions rejected because they weren't doing anything apart from going to seminars so we're clearly treating it as a social hobby, not a business. Canadian rules may vary and give some leeway given he worked the business in earlier years.

To say nothing in the loss of time from working the Amway 'job'. That's not worth zero dollars.

Except he said he didn't spend any significant time working the business.

 

[Leftus]

I don't think that's what he as claiming, and as I'm no expert on Canadian tax, neither am I. My main point is I'd be surprised if he was even eligible for the expense deductions given he said he wasn't working the business. Certainly there have been IRS cases where Amway distributors have had their deductions rejected because they weren't doing anything apart from going to seminars so we're clearly treating it as a social hobby, not a business. Canadian rules may vary and give some leeway given he worked the business in earlier years.

No, that is exactly what he is claiming. It is also exactly what you claimed when you said

Yes, but it's a refund he wouldn't have gotten if he didn't have his Amway business

He is pointing to his operating loss in Amway and then his "total tax refund" and saying that the entire refund makes his Amway profitable. He says is plain as day. And you agreed with it with equal illumination.

I was looking at the IRS rates. Looking at CRA rates, the lowest is 15% and highest rate is 29%. A reduction from the taxable income is at best 236 and at worst 122. This is assuming that the reduction keeps him above the tax line.

There is no way, either in the US or Canada, that an operating loss of $815 is going to generate a profit because of the tax system. They just don't work that way.

 

[icerat]

No, that is exactly what he is claiming. It is also exactly what you claimed when you said

He is pointing to his operating loss in Amway and then his "total tax refund" and saying that the entire refund makes his Amway profitable. He says is plain as day. And you agreed with it with equal illumination.

I was looking at the IRS rates. Looking at CRA rates, the lowest is 15% and highest rate is 29%. A reduction from the taxable income is at best 236 and at worst 122. This is assuming that the reduction keeps him above the tax line.

There is no way, either in the US or Canada, that an operating loss of $815 is going to generate a profit because of the tax system. They just don't work that way.

Ok, I think I get what you're saying now - that the "business loss" does not account for enough of the refund to cover that loss? Is that correct?

I didn't try to run the numbers and have no real interest in doing so (since I don't think he can legitimately claim the expenses anyway) so I'll take your word for it.

 

[Joecool]

Ok, I think I get what you're saying now - that the "business loss" does not account for enough of the refund to cover that loss? Is that correct?

I didn't try to run the numbers and have no real interest in doing so (since I don't think he can legitimately claim the expenses anyway) so I'll take your word for it.

Given the detail in which your Amway related responses are crafted, it's hard to believe you would simply agree with the IBO and claim that his refund was soley due to his Amway business, especially since you're participated in this tax debate with Amway on several other venues. This supports the claims I've seen about you being an Amway shill (whether paid or not).

Secondarily, how do you know what this IBO's intentions are? Have you asked him? How do you know he treated it as a hobby? Maybe he worked his tail off but got insufficient results, but in typical Amway WWDB fashion, he is simply blaming himself as he was taught. Afterall, he must have done something to generate more than $2000 in income.

If he were truly just running a hobby business, why did he attend all the functions and purchase all the training materials? Secondly, if he were running a hobby, then he is not entitled to any business deductions. He would have had a hobby that costed him quite a bit of coins in 2013.

 

[Leftus]

Ok, I think I get what you're saying now - that the "business loss" does not account for enough of the refund to cover that loss? Is that correct?

Yes. A reduction of income by $815 can not create $1,594 without an income tax rate of 196% That is how income taxes work just about everywhere. Take the highest or lowest marginal tax rate and multiple it by the loss. That is both the most and least he could have reduced his tax burden by.

And I don't think there are tax credits enough out there that such a change in income would yield such results either.

Also, the fact that he sees his refund, which is nothing more than his money that he got back from overpaying his taxes, as free money is troubling, but not uncommon. His promotion of this is dishonest, even if it comes from ignorance. And if this is the quality of tax education coming out IBO training, it's reprehensible.

 

[tyr_13]

Except he said he didn't spend any significant time working the business.

Yes he did. And it certainly wasn't zero time if you want to set some silly large number for 'significant'. Any way you cut it it is still a 'cost' to be considered.

 

[icerat]

And if this is the quality of tax education coming out IBO training, it's reprehensible.

Amway's position is that IBOs should be using qualified tax advisors

Business Reference Guide -
IBOs should contact a qualified tax adviser, preferably a CPA for guidance

Promotion of tax benefits is explictly against amway's rules.

Rules of Conduct -
5.4.4. Must not promote potential tax benefits of the Plan.

Business Reference Guide -
Be aware that some self-styled "tax experts" claim that by starting your own home-based business you can improve your current incoem tax situation by simply converting otherwise personal expenses into deductible business expenses. The Amway Independent Business Owner Compensation Plan is not principally aimed at tax "benefits" or relief, and promoting it as such is strictly prohibited.
...

The IBOAI (IBO association) bookkeeping guide also states -

To determine whether or not you are truly operating a business for purposes of allowing business deductions, CRA will look to your records and bookkeeping practices, as well as whether you prepared a business plan, budgets, and break even projections when you started your business. They will then examine how you’ve used these tools to adjust your business practices in pursuit of profitability. Because to be allowed business deductions, you must demonstrate
that you are actively engaged in a trade or business, that your deductions are ordinary and necessary in your trade or business, and that your intent is to make a profit from your business activity.
...
Be mindful of your level of activity in the business. Folks, if you are not showing the Plan very often and not doing much besides going to functions, then you will not only have a hard time demonstrating an intent to make a profit, you’ll have a hard time making a profit

Similar guidance is supplied in the Amway supplied document Your Amway Earnings and the US Income tax, in the Amway training webinar Making Money, and the IRS supplied (and Amway promoted) Direct Sellers Audit Technique Guide

For obvious reasons IBOs are not trained to be accountants but they are certainly supplied with enough information to know better than this post indicates. Amway in many countries, alas not the US or Canada, requires IBOs to undertake a certain amount of the training (usually web-based) before they can introduce others to the business. In North America it's up to the individual to use the resources and training available.

Yes he did. And it certainly wasn't zero time if you want to set some silly large number for 'significant'. Any way you cut it it is still a 'cost' to be considered.

If you're not operating a business the time spent is time spent on a hobby, not an activity to produce income. It has an opportunity cost, but it's no more "lost" than spending time bird-watching or going to the football. Or chatting on JREF for that matter.

 

[mutile]

Ok, I think I get what you're saying now - that the "business loss" does not account for enough of the refund to cover that loss? Is that correct?

I didn't try to run the numbers and have no real interest in doing so (since I don't think he can legitimately claim the expenses anyway) so I'll take your word for it.

No it is not correct, you are missing the point entirely, there are no numbers to crunch. In a marginal tax rate system losses are not beneficial.

It is the equivalent of asking your boss to pay you a little less per hour so you don't get taxed at the highest rate, it is ludicrous.

If it is only a hobby then fine, but don't talk it up as being a good business opportunity.

 

[icerat]

No it is not correct, you are missing the point entirely, there are no numbers to crunch. In a marginal tax rate system losses are not beneficial.

It is the equivalent of asking your boss to pay you a little less per hour so you don't get taxed at the highest rate, it is ludicrous.

I'm not at all interested in a tax debate, since it wasn't my point, but you are incorrect here. If previously non-deductable personal expenses become deductable business expenses it is indeed possible for it to be beneficial.

If it is only a hobby then fine, but don't talk it up as being a good business opportunity.

That hasn't even been vaguely raised in this thread. I'm essentially accusing this guy of tax fraud and you think that means I'm talking it up? Good grief.

 

[mutile]

I'm not at all interested in a tax debate, since it wasn't my point, but you are incorrect here. If previously non-deductable personal expenses become deductable business expenses it is indeed possible for it to be beneficial.

I am always willing to learn something new, can you provide an example of an expense that is beneficial to somebodies financial position?