Amway and Home Based Business Taxes

Posted on May 29, 2014

Do you own and operate your own-home based cosmetic or nutritional products business?

Specifically, are you an Amway distributor?

In a recent Tax Court case, a physician husband and a homemaker wife operated an Amway distributorship.

On their tax returns they claimed $192,427.00 in losses against gross income in the amount of $29,489.00.  Although they attended weekly and monthly Amway meetings and had 22 customers, 70% to 75% of their Amway sales volume was attributable to products and services that they purchased for themselves such as food, diapers, clothing and household products.

The IRS disallowed the deductions they claimed on their tax returns, taking the position that their Amway distributorship was not engaged in for profit.  The court looked at many factors, including the time and effort they expended on the Amway distributorship, and their success with the Amway distributorship including their history of income and losses.

The Tax Court held in favor of the IRS, stating that they did not conduct the Amway activity in a business-like manner and did not engage in that activity with the requisite profit objective.  The Tax Court also upheld penalties against the taxpayers.  If you operate a home based business selling household, cosmetic and/or nutritional products.

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