Profit/Loss and Your Taxes
Quite often you will hear a distributor talk about the expense of building an Amway business, and then say "but you can write it off your taxes". I used the 1997 edition of Turbo Tax to see what the real effect profits and losses have on a persons income. These numbers would apply to any business and not just Amway.
I want to make sure that everyone understands that I am NOT a tax accountant and am NOT attempting to give anyone tax advice.
What I have done is calculated the tax liability for a married couple at $25,000, $50,000, $75,000, and $100,000. I assume no other deductions. The Tax Liability row is the amount of money you owe Uncle Sam when you file your 1040 on April 15. If more than that amount was taken out of your paycheck, you get a refund, if less was taken out -- you owe Uncle Sam some more money.
I then assumed a loss of $5,000 and $2,500 then profits of $2,500, $5,000 and $20,000 to see what the net effect it would have on a married couples tax liability. If you have children, are single, or single with children etc and want to see how these situations would impact you, consult the tax tables, a tax accountant, or purchase your own tax software and play these "what if" games. My intent is to show everyone the effect.
Here are the results:
| Income | $25,000 | $50,000 | $75,000 | $100,000 |
| Tax Liability | 1,924 | 4,924 | 12,235 | 19,235 |
| $5,000 loss | 1,174 | 4,924 | 10,835 | 17,835 |
| $2,500 loss | 1,549 | 5,299 | 11,535 | 18,535 |
| $2,500 net profit | 2,622 | 6,372 | 12,988 | 19,988 |
| $5,000 net profit | 3,321 | 7,230 | 13,741 | 20,747 |
| $20,000 net profit | 7,532 | 12,931 | 18,287 | 25,527 |
What does it mean?
If you are spending $5,000 out of your own pocket on expenses, you are reducing your tax liability by only $750 at the $25,000 income level, which is still $4,250 out of your pocket!
If your income level is $100,000, a $5,000 loss will reduce your liability by $1,400, which still a net loss of $3,600!
The net profit lines shows the increased tax liability from making some extra money from a business. I chose these three numbers because if you assume that there was $5,000 in expenses then the $2,500 profit would represent somebody in the 2,500-3,000 PV range, the $5,000 profit would be someone in the 4000-5000 PV range and the $20,000 would represent a Direct Distributor. However, it should be noted, "Money is not in the pin -- Money is in the organization". A distributor at 4000 PV with eight downline at 500 PV can make just as much money as a Ruby with three downline at 5000 PV.
Finally, take the increased taxes that you pay at the DD level and subtract that from your net profit. This is the amount you keep in your pocket. At the $50,000 income level and assuming your net profit was $20,000, this leaves you with a grand total of $12,743 for your efforts. I don't think a direct can adequately work his/her business on 10 hours per week. If we assume a direct spends 15 hours a week on his business for 50 weeks out of the year (750 hours), that means you made $16.99 an hour, after expenses and taxes. If you throw in a couple hundred hours for seminars/rallies, attitudes, weekend functions, etc or to make the math easier, 1000 hours per year, you are working for $12.74 an hour.
And don't foreget -- only 8/10 of 1% of all distributors on record qualifies at the DD level!
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