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How to avoid an IRS audit. In terms of consistently deducting a loss on a self-employed businessor sole proprietorship that you report on a schedule C, if you have losses in threeof five years reported on a schedule C then this is going to give rise to whether or notconsideration is for this business being a for profit business. You must establish thatyou have a profit motive. Code section 183 talks about the profit motive. You must establishthat you're carrying on this activity as a business. Let's say that you're a woodworkerand you've bought a lot of equipment, a lot of wood, and you've made a lot of very nicefurniture for your home. You do have to establish that you have a profit motive in the purchaseof this equipment, these supplies. Creating items for yourself is not a deductible businessexpense, it's not a business. You have to show that you have operated your businessin a business like manner. That you have a separate business ch

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