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Wednesday, October 04, 2023

To determine whether or not you are truly operating a business for purposes of allowing business deductions, the I.R.S. will look to your records and bookkeeping practices, as well as whether you prepared a business plan, budgets, and breakeven projections when you started your business. They will then examine how you’ve used these tools to adjust your business practices in pursuit of profitability. Because to be allowed business deductions, you must demonstrate that you are actively engaged in a trade or business, that your deductions are ordinary and necessary in your trade or business, and that your intent is to make a profit from your business activity.
In general, you should aim to conduct your business activity in a professional, businesslike manner. Begin by separating your business activity from personal activity, and keep accurate records to evidence the difference. Set goals and periodically review your method of operation to see that you’re effectively meeting your objectives. Always look for ways to improve productivity and profitability. Seek expert help from your upline advisors, and really work the business.
Be mindful of your level of activity in the business. If you are not generating retail sales on a consistent basis, not showing the Plan very often, and not doing much besides going to functions, then you will not only have a hard time demonstrating an intent to make a profit, you’ll have a hard time making a profit. So work hard, get to know the products, provide yourself with retail selling techniques, generate sales at a retail level, and show the Plan often. Follow this advice, and your business activity will speak for itself.
As your business grows and your profitability increases, you may be required to make quarterly tax payments to the I.R.S. to cover income and self-employment taxes. Even though the payments are due quarterly, it is a good idea to set aside money in advance for those payments on a monthly or weekly basis. Seek some help on this, because interest and penalties may accrue if this is not handled correctly.
Finally, but perhaps most importantly, be honest when doing your bookkeeping and preparing your income tax return. Refrain from engaging in abusive tax practices, or from advising others to do so. Such behavior hurts not only you, but also everyone else in the business because of the image and reputation that you portray.
The information and tools in this guide, although not glamorous or exciting, are designed for your benefit. Bookkeeping is an important part of building your business. So keep detailed and accurate records, update and review your records each month, and be diligent in preparing your tax returns.
*** Under the 2018 “Tax and Jobs Cuts Act” (“TJCA”), a 20% qualified net business income deduction is available to profitable IBO businesses under certain circumstances and conditions.  Please consult your tax expert for further information about this and any other changes to the income tax laws made under TJCA.   
I wish you much success with your business!