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I think I'll continue to spout off, as this should be fun.
It appears that you don't really understand this issue, so let me educate you. The income rule related to hobby activities is if an activity earns income in three (not two) out of five years, it is presumed to be a legitimate for-profit activity, and not a hobby. This is important, because losses of a for-profit activity (a legitimate business) are fully deductible, whereas if the activity is a hobby, deductions can only be taken to the extent of revenues, with no losses being deductible.
This presumption of being a for-profit activity is rebuttable, NOT by the taxpayer (as that would be both nonsensical and ridiculous), but rather by the IRS. Consider the following example:
A surf bum hears about the "three out of five rule" and comes up with the following clever plan ('cause surfers are notorious for being incredibly tax savvy). . . "I'll sell one article a year for three years in a row (at $100 each and deducting no expenses), and then my surfing will be a "business!!" Then I'll go to Costa Rica for a six month surf trip, sell another article for $100, and deduct EVERYTHING! Awesome, Brah!! Because, you know, it's like, a totally legitimate business. . ."
What could go wrong?
Well, the three out of five thing is only a presumption. The IRS simply looks at the sum total of what's described above, rebuts the presumption of it being a for-profit activity, and rules hobby, not business, and allows only $100 of deductions for the Costa Rica trip.
So, tell us again how you were able to rebut the presumption that your surfing was a business, and not a hobby.
The 3 out of 5 year rule doesn't really apply to MLM because the average MLM career lasts between 3 to 6 months. The entire selling force actually renews itself within 3 years due to churn, except for the big whales at the top who feed off the churn.
My mother in law is involved with a MLM. She makes $70,000 a year. The catch is a portion of that she has to give to people to buy products. Still a decent income though. She can afford a new $1,600 a month condo, and live off it. It takes years to get to that point.
I think I'll continue to spout off, as this should be fun.
It appears that you don't really understand this issue, so let me educate you. The income rule related to hobby activities is if an activity earns income in three (not two) out of five years, it is presumed to be a legitimate for-profit activity, and not a hobby. This is important, because losses of a for-profit activity (a legitimate business) are fully deductible, whereas if the activity is a hobby, deductions can only be taken to the extent of revenues, with no losses being deductible.
This presumption of being a for-profit activity is rebuttable, NOT by the taxpayer (as that would be both nonsensical and ridiculous), but rather by the IRS. Consider the following example:
A surf bum hears about the "three out of five rule" and comes up with the following clever plan ('cause surfers are notorious for being incredibly tax savvy). . . "I'll sell one article a year for three years in a row (at $100 each and deducting no expenses), and then my surfing will be a "business!!" Then I'll go to Costa Rica for a six month surf trip, sell another article for $100, and deduct EVERYTHING! Awesome, Brah!! Because, you know, it's like, a totally legitimate business. . ."
What could go wrong?
Well, the three out of five thing is only a presumption. The IRS simply looks at the sum total of what's described above, rebuts the presumption of it being a for-profit activity, and rules hobby, not business, and allows only $100 of deductions for the Costa Rica trip.
So, tell us again how you were able to rebut the presumption that your surfing was a business, and not a hobby.
Wow. What an incredibly hyperbolic and condescending post. You're just being silly in the interest of continuing to argue. You were not present and had nothing to do with the audit being discussed. You are trying to defend your false assumptions by creating a fictional multi-year, Costa Rican (?) tax scam that in no way resembles the single year audit being discussed.
Three profitable out of five, hence the two out of five I referenced allowed for losing years. It's simple math, brah. Irrelevant as I didn't file as a business for five years just the one and my auditor ruled in my favor as originally filed. Them's the facts, professor. You may want to have someone review your own taxes as your hubris may have you overlooking legitimate deductions and strategies.
Wow. What an incredibly hyperbolic and condescending post. You're just being silly in the interest of continuing to argue. You were not present and had nothing to do with the audit being discussed. You are trying to defend your false assumptions by creating a fictional multi-year, Costa Rican (?) tax scam that in no way resembles the single year audit being discussed.
Three profitable out of five, hence the two out of five I referenced allowed for losing years. It's simple math, brah. Irrelevant as I didn't file as a business for five years just the one and my auditor ruled in my favor as originally filed. Them's the facts, professor. You may want to have someone review your own taxes as your hubris may have you overlooking legitimate deductions and strategies.
Careful because you may entice every MLM'er viewing to go out and buy a Corvette, only to discover they can't write it off. That would be an expensive lesson in tax laws.
My mother in law is involved with a MLM. She makes $70,000 a year. The catch is a portion of that she has to give to people to buy products. Still a decent income though. She can afford a new $1,600 a month condo, and live off it. It takes years to get to that point.
Depending on the type of MLM, she would probably also require a minimum monthly order size to maintain her ranking. She may also be required to pay an annual registration fee and online access fees. In addition, she will have all selling costs (fuel, mileage, parking, lease) as well as the associated costs of attending seminars, conferences and conventions. She may also pay for setting up booths at local fairs, or advertising in local media. She may also be on the hook should a downline refuse to refund any commissions received for a cancelled or returned order. That $70k figure, as always, is a pre-exense figure. And seldom is it consistent from year to year unless she has discovered the profitability of hosting pay-to-attend events for her selling force, which comes with its own set of costs (hall rental, brochure printing, sound system/fog machine rental). And to achieve $70k in MLM typically means she has 100 or more in her downline. I can guarantee you that every business with 100 or more employees has several $70k earners, and that is take home pay, not merely gross revenues, and it comes with paid vacation time and many other benefits. Furthermore, that is paid every year and not just during a single best 12 month rolling window.
Do you in the US hear much about the food processor called a Thermomix? Trouble is they cost about $US1,500 so it is not a purchase you usually make lightly. You can buy a decent stove for that . My friend is a demonstrator and I did buy one, as much to help her out as for any other reason. But I have had to be quite firm with her about not wanting to upgrade or buy more attachments. I lent mine to my daughter when we were away for a couple of months but she just did not think she could justify the cost. I also know it is no good recommending the device to my retired friends as you need to do a lot of cooking to be worth it and most of us are wanting to minimise our cooking at this stage.
My mother in law is involved with a MLM. She makes $70,000 a year. The catch is a portion of that she has to give to people to buy products.
So... she's giving people a rebate on her commissions? Or is she buying things and giving them to her "customers"? One thing I read that happens a lot is that the sales people buy tons of the stuff themselves to meet their quotas, hoping they can sell it later.
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