…especially if you are a sole proprietorship! The IRS would love for you to continue as a sole proprietorship in your business, because that makes you an easy target! They know that sole proprietorships are most likely to under-report their income and over-report their business expenses. Definitely, low hanging fruit!

The IRS believes there to be a $300 BILLION tax gap — $300 BILLION in uncollected taxes — each year! The biggest culprit? Not large corporations, but small business owners. In fact, sole proprietorships are 300% more likely to get audited than someone who does not file a schedule C!

And watch out all you E-Bay users! Want to get the IRS really hot and bothered? Don’t run your business like a business. Run it like a hobby, and just watch them have their way with you!  Ignore proper accounting systems from Day 1… just “try” your new business to see if it works (all the signs of a hobby)… and see how fast those business deductions are disallowed!  

If you fall into the “hobby-business” category, don’t expect to get your IRS “love letter” notice right away. This particular valentine may take its sweet time to get to you, in the form of an audit with penalties plus a few years’ interest!  Who said love doesn’t last?

Solution: Run your business like a business.  Document all your business expenses, use QuickBooks® or some other accounting software to operate your business, and DON’T operate as a sole proprietorship! Incorporating is a much better approach.

Scott Letourneau is the CEO of NCP, Inc. and an authority in helping people form entities, grow their business, and protect the assets of that business. His Top 5% Club is highly acclaimed by business experts around the country. Visit www.nvinc.com to receive your free guide, Costly Mistakes To Avoid When Incorporating in Nevada!