In order for an expense to be tax deductible, you must incur it for a business, and not for a hobby.<\/p>\n
It you want to deduct an expense, the IRS will apply a Facts and Circumstances Test to answer the question “Is this activity a business, or a hobby?” If it’s a hobby, it’s not deductible. If you can show the IRS your intention to make a profit, you have a business. It’s up to you to be able to prove it. If you have any fun at the activity you want to declare a business, you may have a problem. You need facts and circumstances that support your intent to make a profit.<\/p>\n
How the IRS answers the question “What is a business?” relates to several court rulings.<\/p>\n
A professor, in his spare time, gave motivational speeches. He didn’t make a lot of money. In fact, he lost money. In his audit, the IRS ruled that his expenses weren’t deductible because speaking was a hobby-he enjoyed doing it. The Professor said, “You’re kidding me. I can’t enjoy what I do?” The court reversed the IRS’ decision and ruled in the professor’s favor.<\/p>\n
Another man bought a piece of property that didn’t turn a profit for 26 years. The IRS wanted to deem his expenses a hobby loss. But the service had a problem. In year 27, the landowner sold his property for $3,000,000 more than he paid for it. When the owner went to court his attorney said, “Isn’t the intent of a business to make a profit?” Since clearly he had made a profit, he won.<\/p>\n
If you lose money for an extended period of time, and you intend to make a profit, you can still deduct your expenses. Many people believe that if you’re a sole proprietor, you must make money in at least two of five years, or you will send a red flag to the IRS. This is a myth. You can lose money for many years without sending a red flag to the IRS.<\/p>\n
There are many activities that support your intent to make a profit. Here are a few:<\/p>[\/et_pb_text][dsm_icon_list icon_color=”#0079C2″ list_vertical_alignment=”flex-start” list_padding=”0px||||false|false” _builder_version=”4.21.0″ _module_preset=”default” hover_enabled=”0″ border_width_top_icon=”5px” border_color_top_icon=”#FFFFFF” global_colors_info=”{}” theme_builder_area=”post_content” sticky_enabled=”0″][dsm_icon_list_child text=”Keep clear records of expenses and their purposes” font_icon=”9||divi||400″ icon_color=”#0079C2″ icon_font_size=”16px” _builder_version=”4.21.0″ _module_preset=”default” hover_enabled=”0″ global_colors_info=”{}” theme_builder_area=”post_content” sticky_enabled=”0″][\/dsm_icon_list_child][dsm_icon_list_child text=”Generate income” font_icon=”9||divi||400″ icon_color=”#0079C2″ icon_font_size=”16px” _builder_version=”4.21.0″ _module_preset=”default” hover_enabled=”0″ global_colors_info=”{}” theme_builder_area=”post_content” sticky_enabled=”0″][\/dsm_icon_list_child][dsm_icon_list_child text=”Incorporate your business” font_icon=”9||divi||400″ icon_color=”#0079C2″ icon_font_size=”16px” _builder_version=”4.21.0″ _module_preset=”default” hover_enabled=”0″ global_colors_info=”{}” theme_builder_area=”post_content” sticky_enabled=”0″][\/dsm_icon_list_child][dsm_icon_list_child text=”Hire an employee” font_icon=”9||divi||400″ icon_color=”#0079C2″ icon_font_size=”16px” _builder_version=”4.21.0″ _module_preset=”default” hover_enabled=”0″ global_colors_info=”{}” theme_builder_area=”post_content” sticky_enabled=”0″][\/dsm_icon_list_child][\/dsm_icon_list][et_pb_text _builder_version=”4.21.0″ _module_preset=”default” hover_enabled=”0″ global_colors_info=”{}” theme_builder_area=”post_content” custom_margin=”||8px||false|false” sticky_enabled=”0″]Whether or not you make money, if you can show the service you intended to make a profit, you can successfully deduct your expenses. \n\n[\/et_pb_text][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=”1″ _builder_version=”4.21.0″ _module_preset=”default” background_color=”#55791A” custom_padding=”60px||71px|||” locked=”off” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_row _builder_version=”4.21.0″ _module_preset=”default” custom_padding=”0px||0px|||” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_column type=”4_4″ _builder_version=”4.21.0″ _module_preset=”default” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_text _builder_version=”4.21.0″ _module_preset=”default” text_text_color=”#FFFFFF” header_2_font=”|600|||||||” header_2_text_color=”#FFFFFF” header_2_font_size=”30px” header_3_text_color=”#FFFFFF” text_orientation=”center” custom_margin=”||27px||false|false” hover_enabled=”0″ locked=”off” global_colors_info=”{}” theme_builder_area=”post_content” sticky_enabled=”0″]
In order for an expense to be tax deductible, you must incur it for a business, and not for a hobby. It you want to deduct an expense, the IRS will apply a Facts and Circumstances Test to answer the question “Is this activity a business, or a hobby?” If it’s a hobby, it’s not deductible. If you can show the IRS your intention to make a profit, you have a business. It’s up to you to be able to prove it. If you have any fun at the activity you want to declare a business, you may have a problem. You need facts and circumstances that support your intent to make a profit. How the IRS answers the question “What is a business?” relates to several court rulings. A professor, in his spare time, gave motivational speeches. He didn’t make a lot of money. In fact, he lost money. In his audit, the IRS ruled that his expenses weren’t deductible because speaking was a hobby-he enjoyed doing it. The Professor said, “You’re kidding me. I can’t enjoy what I do?” The court reversed the IRS’ decision and ruled in the professor’s favor. Another man bought a piece of property […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[1],"tags":[],"yoast_head":"\n