How Long Should You Keep Tax Records?

You should keep copies of the tax returns forever. The documents supporting the return should be kept for the current year and the three previous years. Records showing the cost or basis of an asset you own such as real estate or stocks need to be kept until the asset is sold.

Nondeductible Contributions

You can't take a tax deduction for the following contributions: politicians or political groups, individuals, most foreign charities, a group lobbying for law changes, raffle tickets, and even giving blood to a blood bank. If you donate your time to a charity, that isn't deductible either. You usually can deduct your out of pocket expenses working for a charity though.

Employee vs Independent Contractor

The IRS wants everyone to be an employee because tax compliance and collection are better with employees than with independent contractors. One way to make the case that your workers are independent contractors is to show that they work for others too and not just for you. How can you show that? Make sure your workers have business cards which they use to promote their services out to the general public.

Hobby Expenses

Hobby expenses are only deductible to the extent of hobby income, and to even make it worse they  are subject to the 2% of adjusted gross income limitation as miscellaneous expenses on schedule A. So you want the IRS to think of your activity as a business and not a hobby so all of the expenses are deductible. How do you do that? You may have to prove to the IRS or a court based on all of the facts and circumstances that you intend to make a profit such as keeping businesslike books, using a business checking account, using a separate credit card for business, and developing an expertise in the activity. You may not have had a profit in ten years, but if you can prove you intend to make a profit you are ok. You also help your case if there are no elements of personal pleasure or recreation in the activity.