For Home Based Businesses / MLM / Direct Sales Reps
There’s no denying that there are some key items to complete when wanting to be compliant and not draw an audit your way. This is a short summary of the key points.
1.) File ON TIME
Yes, filing late and even getting an extension puts you in a different category. Most people just avoid doing their books all year long, then it becomes a big mountain of a task. Keep monthly books and then taxes are no problem to get together in 3 1/2 months.
2.) Show Your Intent To Profit
This is evidenced by having a business plan. The IRS wants you to be a business, not a hobby. Businesses have business plans and they are updated and adjusted on a regular basis. (not just done once and put away)
3.) Have Sufficient Business Activity
Are you working your business on a consistent, persistent basis? Or are you working it just once and awhile? Businesses go to work everyday. You can show evidence of this by keeping a date book with all of your activity in it.
4.) Record Keeping
I realize that not all people want to be anal bookkeepers, but you must have a system. An auditor should be able to trace your tax return amounts back to a set of books (can even be a spreadsheet) and then back to receipts. If you can do this, you are golden. If you cannot, hire a bookkeeper!
These are just basic things you can do to be compliant with the IRS in proving that you do actually have a legitimate business, not a hobby.
When you do these things, you will also note that your business will grow bigger!
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