By: Lynn M. Mckeel, Fall 2017 IAC Student Intern
With big claims of financial independence and owning your own business, it is actually quite difficult to figure out just what type of stake you have in the MLM. Most, if not all MLMs, are considered 1099 independent contracts. This means that you are not an employee of the company. You will be liable for your own tax liability, usually on a quarterly basis. Taxes for 1099 compensation can seem unusually high if you aren’t prepared. This is because a “normal” W2 employer absorbs some of the employee’s tax responsibility. A 1099 contractor (aka the new MLM recruit) does not receive that same benefit. Income generated from the MLM will be reported by the Company and the recruit will be held accountable for that earned income. It is imperative that you speak with a tax professional before enrolling in an MLM.
Another consideration is the amount and type of deductions an independent contractor may claim. Often MLM recruits work throughout the day and night, interweaving home and business responsibilities. Expenses may easily co-mingle with normal day-to-day expenses, especially essentials such as telephone, internet services, and transportation. Before writing off every dime spent, speak with a tax professional. 1099 contractors, including MLM recruits, may be surprised at the limits of the deductions. Alternatively, you don’t want to miss out of the opportunity to deduct a big expense if it qualifies. Keep immaculate records, save receipts, stay organized, speak with a tax professional, and don’t be afraid to get a second opinion.