Written by Frosty Rose

One of the perennial “benefits” that Mary Kay recruiters tout for starting your own MK business is tax advantages. As a home-based business, there are oodles of expenses you can write off, lowering your total reported income and thus your tax burden. Some are legitimate. Think internet to operate your business, office furniture, postage for sending products and catalogs to customers, etc.

Some are decidedly questionable. Visiting your sister-in-law for Spring Break? Great! Pack your samples, give her a facial, and write off the trip. Most of these low-level abuses go unnoticed, or at least unaddressed, by the IRS because the fraud is so small that it’s likely not worth pursuing.

Most. But not all. This article, Tax Court Finds Individual’s Mary Kay Activty Wasn’t For Profit,  was unearthed by one of our dedicated Pink Truth Super Sleuths. It’s an oldie but a goodie. It shows an extreme example of how consultants are trained to defraud the IRS.

The short story is that from 2012-2014, Nancy Cox ran a Mary Kay business from her home. In three years, she reported  $4,276 in gross receipts (sales), and $85,791 in expenses. Well, for years, Pink Truth has been shouting from the mountaintops that you’ll lose money in this business. But over $80,000 in three years?? That’s eye-watering even by our standards.

So, what happened?

According to the article, Ms. Cox’s “sole Mary-Kay-related assets were perishable beauty products she kept in a closet. She did not secure professional bookkeeping services for this activity, and she maintained no business records in the form of ledgers, income statements, or statements of cashflows. She made no effort to track the profitability of her Mary Kay activity or evaluate ways to control her losses.”

That’s unsurprising. It tracks with everything we’ve all seen and experienced with Mary Kay—few assets and no business acumen are required to start a business. Still doesn’t add up to an $80K loss. So, what gives?

According to this article on taxpayers behaving badly,  the author talks about the same case? “Her reported travel expenses (for example) were incurred in 27 separate trips during 2012-2014. It turns out that 20 of the supposed business trips were volleyball tournaments in which her daughter participated. Two trips involved travel with her daughter to Europe and Disney World! Another two were to attend meetings of her college sorority.”

That’ll get the IRS to sit up and take notice! Of her 27 reported trips, 24 were primarily personal. And none of them were cheap. I guess you can’t put mascara on a dozen high-school volleyball players and write off the whole season after all.

Okay, so Nancy was stupid. She blindly believed her director’s advice to write off every trip that she took as a Mary Kay business expense. She traveled a lot, paid for it with her well-paid J.O.B., and got nailed by the IRS for back taxes and penalties.

This is an extreme example of what happens with Mary Kay businesses, but if you scratch the surface of the tax filing, the mundane and ordinary are also revealed in this case.

Ms. Cox sold $1,662 in 2012, and reported an expense of COGS (cost of goods sold) of $1,354. That $1,354 is the wholesale price of the products that she purchased from the company. $1,662 is what she collected from her customers. If we’re to believe the Friday Critics, her sales number should be exactly double her COGS. Further proof that the 50% profit is a lie. For Ms. Cox, her “profit” was $312 for the whole year, a mere 18.5%.

But… but… but… That was just her first year in business! Surely, the following years were better, when she picked up steam and learned what she was doing? Meh. In 2013, she sold $1,904 and ordered $1,459 from the company, about a 25% profit. However, that year she reported a $555 loss from returns, leaving her $110 in the red on total product costs. And in 2014, she ordered $949 and only collected $710 from customers, putting her in the red before we even consider volleyball tournaments or Disney vacations.

I’ll let our dear readers go through the rest of her return line-by-line and draw their own conclusions about the rest of it. But here are my take-aways:

Ms. Cox is an abysmal businesswoman who lacked any sort of training on how to run a business profitably or report her business earnings and losses to the IRS and it got her in a heap of trouble; her upline either did not care or (more likely) was equally ignorant.

And, importantly, regardless of how much business acumen she did or did not have, Mary Kay is a loser of a business. You’ll almost always lose money on product sales, and the only way to report a net positive income is to sucker other women into this bogus opportunity. Even then, only a very few will ever make any money, all at the expense of losses in their downline.