What Exactly is Cash Gifting?
Cash Gifting in itself is not wrong.
There is nothing wrong with a mother giving her son $20 for the sake of it. There are no eyebrows raised when you give money to a church or any charitable organization out of the goodness of your heart.
These are both examples of giving cash gifts without necessarily expecting anything in return.
Cash Gifting becomes a problem when an entire system revolves around exchanging money. You pay $500 to your sponsor for no real products or services and this payment now qualifies you to earn $500 from each person you recruit into the system.
That’s the cycle of cash-gifting right there. It’s a system of giving money to someone above you in the chain with the expectation that you are going to earn many times more by having people gift you as well.
By the way, a system having no real products does not necessarily mean it has zero products altogether. In the case of our previous example, you are paying $500 for the opportunity to earn $500 from each person you recruit into the system. After paying the money, the program might give you some cheap materials, like e-books, as add-ons.
You did not pay $500 for the e-books. You paid $500 for the cash-gifting opportunity and it just so happens that some e-books were included. In this case, e-books are not real products because that isn’t what they are really selling you.
Is Cash Gifting Legal or a Scam?
Cash Gifting systems are illegal in most countries but the reason why isn’t as straight forward as you might think it is. The reason why comes down to two factors; the amount & the location.
Again, giving $20 or $200 to your daughter or nephew out of sheer goodwill is completely legal and acceptable everywhere.
However, certain countries have a threshold amount that requires the people receiving the cash gift to declare and pay tax on what they have received. Laws are unique in different places and I strongly advise you contact your local tax office to acquaint yourself with the laws governing your area.
Not all countries tax cash gifts. For example, any resident of Canada who receives a cash gift of any amount does not need to include it as part of their income. Remember we are talking about regular cash gifts here.
Even though giving and receiving cash gifts is legal everywhere, cash gifting systems are illegal in almost every country, including Canada. The reason is simple.
Cash-gifting systems have people recruit more people into the system and have each member pass money up without providing any real goods or services. This makes cash-gifting systems pyramid schemes and pyramid schemes are illegal in most countries.
This is only one problem with cash-gifting systems!
The promotion of cash-gifting systems is always about making tax-free money. That is where the appeal comes from, but is the money you’ll be earning really tax-free?
Here’s what the Attorney General’s office of the state of Michigan has to say…
If you are currently involved in a gifting scheme, or have participated in a gifting scheme in the past, keep in mind that you are also required to report any earnings you received to the Internal Revenue Service. Despite any promises made to you by those operating cash gifting schemes, earnings received from a gifting pyramid are taxable.
Once again, I recommend you contact your local tax office to know the specific laws that apply to your resident area. But I know this law applies to a lot of states and countries.
What this means is not paying taxes on income earned in a cash-gifting system is illegal. Not only will you be participating in a pyramid scheme, you will also be breaking the law if you fail to pay taxes on your earnings.
Basically, giving/receiving cash gifts without the giver expecting something in return is legal. Participating in a cash-gifting system where you gift someone in order to qualify to be gifted by other people is illegal.
I have reviewed a lot of cash-gifting schemes on this website, one of them being Turbo Wealth Solution which has 6 membership levels that cost between $1000 to $20,000.
This is a typical cash-gifting program where you pay thousands of dollars to get into the opportunity and they bundle some low-quality e-courses to make them look less of a pyramid scheme.
If you sign up at the $3500 membership level, 100% of your membership fee ($3500) goes up to the person who recruited you. Also, 100% of the membership fee of your first recruit goes up to the person who recruited you. From your second recruit onwards, you get 100% of the membership fee from recruits who sign up at your membership level or lower.
The membership fee is what gets you the opportunity to receive cash gifts of amounts up to your membership fee. This is not a purchase of any product or service. In our example, gifting $3500 only qualifies you to earn $3500 or less from each person you are able to recruit into the system.
Whenever an opportunity is about recruiting, rather than products or services, it is a scam. Cash Gifting schemes are about recruiting and therefore, they are scams.
Does Cash Gifting Work?
If what you want to know is whether you can make money in a cash-gifting system, the simple answer is yes.
One thing I have learned over the course of running this site is: People don’t care if a company or system is a pyramid scheme. All they care about is if they will make money.
The weird part is I cannot say they are wrong.
The only time participants might clash with the law is when they do not declare their earnings and pay their taxes. The only other issue participants could possibly run to is the possibility that these schemes could easily collapse, close down or be shut down.
They all eventually collapse, close down or get shut down. It’s only a question of when. Some might last many years before evidence is gathered to shut them down while others last a few months. I have reviewed a program that lasted one month! These schemes are generally not a long-term method of making money.
So yes, it is possible to make money from cash-gifting schemes. If you are able to recruit people into the scheme the same you were recruited, people will gift you money.
The problem is: recruiting people is easier said than done. There’s a reason 95% of people involved in pyramid schemes fail.
Is Cash Gifting a Pyramid Scheme?
Yes, it is. I know I’ve mentioned this a thousand times already but I would like to refer back to the Michigan Attorney General’s statement this time…
Cash gifting schemes are the quintessential example of a pyramid scheme. Instead of selling products, cash gifting schemes forego the sale of products and just give people cash, but the premise is the same – like other pyramids, cash gifting schemes are based on the amount of people recruited.
I don’t think I need to add anything else.
How to Spot a Cash Gifting System
There are a few questions that need to be answered in order to identify a potential cash-gifting opportunity:
- What exactly are you paying for? You need to evaluate whether you are paying for a product or service or you are simply paying for the opportunity to recruit others into the system. If it’s the latter, it’s either a cash-gifting opportunity, pyramid scheme or both.
- Do recruiters get 100% of recruits’ membership fees? This is one of the certain indicators of a cash-gifting scheme. Your sponsor gets 100% of your membership fees and, in some cases, also get 100% of some of your recruits’ membership fees. Think about this for a second: Your sponsor doesn’t own the program, so why does he get 100% of your membership fee?
- Does money exchange happen between recruiter and recruit? If the answer is yes, it is definitely a cash-gifting scheme. This leaves the burden of risk between the two parties involved.
So What Now?
Cash Gifting might seem like a quick way to make money online but it’s very risky and definitely short-term. You could easily find yourself spending thousands without making a dime.
The truth of the matter is there is hardly any quick way to legitimately make money online. You’re going to have to invest some time to learn and work in order to be successful online.
In the “Programs I Recommend” tab in the top menu, you can find a few programs that can help you make money online but my strongest recommendation is that you build a business around something you are passionate about.