It’s the holiday season, and there are a lot of skin-care products, athleisure wear, kitchen gadgets, makeup and nutritional supplements for sale at home parties near you. You’ll get an invitation along the way at some point, if you aren’t flooded already, and the neighborly salesperson will present themselves as a big success and maybe even try to bring you in on the deal. But lurking somewhere beyond the sales pitch is a very bleak tax return. “Most of the time it fails,” said Adam Markowitz, an enrolled agent and partner at Luminary Tax Advisors in Florida.
“I haven’t seen anyone make anything of substance,” added AJ Campo, a CPA whose firm is based in New Jersey. Multilevel marketing is a business structure where salespeople buy products on speculation to sell independently on commission, and then they can also make a portion of the sales of anyone they recruit to sell. The business structure is legal, but the layered nature has given it the reputation of pyramid schemes, which are illegal and typically don’t involve any sales of products. Familiar MLM brands include Avon, Rodan & Fields, Amway, LuLaRoe, Tupperware and Mary Kay Cosmetics. The Federal Trade Commission issues warnings regularly about MLMs, and one report estimates that 99% of those involved lose money. An AARP report from 2018 was a little more generous, estimating that 53% of the more than 20 million Americans who participate make less than $5,000. Despite the statistics, MLM still attracts plenty of salespeople, because they think the …
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