Originally Posted by kajshack
This is one of the few times I actually agree with Brad. Some of the stuff referenced above is just asking to take an ass pounding from the IRS. A CPA once told me that a "home office" deduction is the biggest red flag for any small business. If you want to be audited, please claim that the extra bedroom in your apartment or house is a "home office." Also, setting up a tax shelter by starting a new failing business every three years is another giant flag.
The IRS can go back 7 years - so if you start reporting a bunch of stuff this year or next year that you've never reported before, you better be able to prove that you didn't under-report in the last 7 years.
Here's what I'm doing (and I'll have one my CPA buddies look over it) - I'm running a report of all of my Paypal payments for 2010. I am also printing out every invoice/receipt for money I've spent on Blowout, D&A, Big T, Global, C&S, etc. I also saved most of my receipts from the LCS. I will add up the receipt totals to see how much I spent, compare it to my total payments received on Paypal, and report the difference (positive or negative). I am not deducting any personal expenses (such as printer ink, mileage to drive to the post office, shipping costs, bubble mailers, etc) because you are just asking to be audited.
Bottom line - if you're going to play in this "hobby" you need to document everything. If you haven't been saving your receipts, you're probably F'd in the A.
Not completely true. The statute of limitations is as follows:
They can go back 3 years on any return.
They can go back 6 if it's a significant income that was omitted (25% of your gross income shown on your return)
Open indefinately for fraud.