As a new business owner, you may find that it takes a couple of years to become established in your market place and to make a profit. While you are operating at a loss and wondering if and when your business will eventually become profitable to pay your bills, you seemingly have the comfort of knowing that your losses are tax deductible and can offset other sources of income. Or do you?<\/p>\n
Did you know that if a business fails to generate profits in at least two years in a five-year consecutive period, the IRS presumption is that your activities are not those of a business but of a hobby? This is referred to as the IRS\u2019s \u201chobby loss rules\u201d.<\/p>\n
If the IRS prevails on its assertion that you do not have a business engaged in for profit but have a hobby, no deductions are allowed except to the extent of income from the activity. Thus, those losses that were used to offset other sources of income (such as salary or investment) to reduce taxes are lost.<\/p>\n
Accordingly, business owners whose business plan (or actual results) is showing losses in the early years, must be prepared to show that such activity is a business from which the owner intends to profit. It is not necessary that the activity actually earns a profit, so long as a profit is one of the motives for participating in the activity.<\/p>\n
To make sure you are properly claiming all of the deductions available to you, and to strengthen your position in the event of an IRS audit, it is important to consider all the facts and circumstances surrounding activities the IRS is likely to challenge. If you know what factors the IRS and courts consider to determine if a business or a hobby exists, you should be able to prevail if audited by the IRS.<\/p>\n
If you would like assistance in documenting the for-profit characteristics of your activity, or if you wish to discuss your business or personal tax planning<\/a>, tax preparation<\/a> and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601<\/a> today to make an appointment at our Exton PA CPA office<\/a> to discuss your situation. You can also schedule a consultation at Click Here<\/a>.<\/p>\n As a new business owner, you may find that it takes a couple of years to become established in your market place and to make a profit. While you are operating at a loss and wondering if and when your business will eventually become profitable to pay your bills, you seemingly have the comfort of […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[3],"tags":[],"class_list":{"0":"post-2242","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-irs-tax-planning-ideas-tips-news","7":"entry"},"aioseo_notices":[],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p9W9tf-Aa","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/posts\/2242","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/comments?post=2242"}],"version-history":[{"count":5,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/posts\/2242\/revisions"}],"predecessor-version":[{"id":2247,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/posts\/2242\/revisions\/2247"}],"wp:attachment":[{"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/media?parent=2242"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/categories?post=2242"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/tags?post=2242"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Copyright \u00a9 2017 Keystone Financial Solutions, P.C.\u00a0 All rights reserved.\u00a0 BE SURE TO READ THE DISCLAIMER PAGE: Content in this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher of this blog makes no representations as to the accuracy or completeness of any information herein, will not be liable for any errors or omissions, and shall not assume liability for any losses, injuries, or damages from the display or use of this information.<\/strong><\/h6>\n","protected":false},"excerpt":{"rendered":"