Can I file as a business intended to make greater profit but change to hobby in future if it turns out that I can't seem to do more than break even?

[Wheresmymoney]

I sell eggs/breed chicks from my home. I am not just selling accidental surplus, but I am planning on breeding chicks for sale. My start up costs were $2,000+ but my chickens had to mature, so only sold $100. II don't want to file hobby because obviously I don't have the income to offset those expenses. I certainly hope and plan that future costs will just be maintenance/feed and that sales will cover that plus provide some profit. Is there a certain margin of profit you have to have? If I file this as a business, take start up costs as expenses, but then over the next couple of years don't end up doing as well as hoped profit-wise in the future, can I change to hobby for future filings? I hate to whine that it's not fair, but to be required to report cash sales and pay tax on that while at the same time having to spend money on feed and other supplies and never be able to deduct those expenses seems a little, well, unfair. Any suggestions or ideas?

[DDollar · Accepted solution]

It is perfectly normal and OK for a startup business to have losses in the first few years.  The IRS assumes your are in business for profit if you make money in 3 of 5 consecutive years.  There is additional leeway for start up periods. If your intent is to make a profit, treat it like a business.

[Wheresmymoney]

Thank you for the reply TurboTaxDavidD - though intended as a business, it will never be a way to make a living on its own. My husband is the main wage earner, but I'm trying to supplement our family income. I have seen so much conflicting information on this and don't want to trigger an audit. So if I do the business route, do I have to have a business license for IRS purposes? Do I have to identify myself as self-employed? And where should I enter all of this- on a schedule F or other place?

[Jhea31G]

I’m hoping to move on to getting my 1040-SR for 2021 completed.. where are we in that process?

[TiffanyL]

May I ask exactly what it is you are needing assistance with?

@Jhea31G