Is Your Business Screaming For An IRS Audit?

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As tax time nears you should be aware of the trends that are clear – the IRS is targeting more small businesses for audits and they’re denying deductions left and right.  Sole proprietorships are especially at risk. I have confirmed with my CPA networks that there is a huge risk to continue to operate as a sole proprietorship. Our CPA contacts are also recommending that you should get off schedule C in 2014 ASAP.

Here are just a few of the audit trigger red flags that IRS agents are watching for:

  • claiming 100% business use for your vehicle (this will almost certainly invite an audit)
  • large deductions that seem out of proportion for the business (this is what their computer systems look for)
  • any schedule C deductions for business travel, meals or entertainment (you are able to take these deductions but if excessive and if audited not documented properly you are toast)
  • hobby losses claimed as business expenses (you best be able to prove you were a real business)
  • regular wage income combined with large schedule C losses (you must prove you had a real business, which we teach you those requirements on the training below)
  • any documentation that doesn’t meet their strict substantiation requirements (this is NOT your CPAs responsibility, it is yours)

 The vehicle deduction is a very common slipup. The IRS knows that 100% business use is extremely rare, especially when there’s no other vehicle for personal use. Activities like photography, dog breeding, car racing or other sports or outdoor activities are tough to substantiate as business expenses because they look like hobbies to the IRS.

Could your business be sending an “audit me!” message to the IRS? The surest way to protect yourself is to establish a complete foundation for your business, starting with a properly formed separate legal entity. Do you know the 5 essential elements of a complete business foundation? Take advantage of this brief, free training to find out where you may be vulnerable to the IRS!

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NEW TrainingThe 5 Essential Components for a Complete Business Foundation: 
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Pick your time and date to be part of this special training.

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Operating as a Sole Proprietorship?

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It’s a safe bet that you started your business to succeed and make money, not to add stress to your life and lose money.

To cut to the chase, operating as a sole proprietorship is NOT the fast track to success – in fact, it’s the shortest path to join the 95% of businesses that fail in the first 5 years.

To be fair, you probably made this choice for one of three logical reasons; (1) you were looking for the easiest and cheapest way to get started, (2) you wanted to test the waters to see if your idea would make money, or (3) your tax advisor told you to keep it simple and go the sole proprietorship route until you earn more than $40K to $50K in profits.

Risk taking

Unfortunately, that decision sends a different message to the rest of the business world:

“I don’t believe in myself, my product or my service or I don’t expect
to make $40K in profits.”

For going on two decades now, I’ve helped over 6,000 entrepreneurs reverse that message, escape the sole proprietorship trap and make a fast start to profits. Here are just a few of the strategic insights that woke my clients up to the money they were leaving on the table:

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