Direct Sales May Have A Bull’s Eye On Its Back

The direct sales industry has received a bad wrap over the years because of some of the unscrupulous people who have taken advantage of others. However this industry is touted by many as being the key to success for middle class America. Many may or may not agree with either of these statements. Nonetheless, the direct sales industry as well as other entrepreneurial industries may be the next target of the IRS and state tax authorities.

Members in the direct sales industry must be sure to keep all of their receipts for the year. With the current economic downturn the IRS and state tax departments will be looking to generate revenue. These entities generate revenue by auditing returns – taking a closer look at things.

Here is what I suggest to protect you from audits:

(1) Be sure you are in business to make money and not just for a tax deduction. The best way to do this is to be active in your business, generate some revenue.

(2) Keep all receipts. Take them out of the shoe box. Develop a system where you are able to scan your receipts and develop a short narrative for each receipt.

(3) Seek a professional to prepare your tax return. Don’t try to compute your return on your own. You might find that it will cost you more to prepare your own return in the long run. I recently had a person prepare their own return, to save money. The person made a mistake and they now have to pay for the amended return to be prepared along with owing the IRS and their state more money. In addition your preparer might be able to recognize deductions that you aren’t able to.

(4) Engage in your business. More than likely your activity will produce income and it will also produce tax deductions as well.

(5) Engage in tax planning with your preparer, if that service is offered. You are in business so you should plan for taxes just like you plan for a vacation. Many of my clients know exactly what their tax status is several months before the end of the year.