New Business for Content Production

[Bingo3]

Hi,

I am starting to make content (articles, videos, etc...) for cloud computing. Pretty much everything would be a loss since I would just be paying for cloud computing and hosting resources. Is it possible to start a business and take claim any of those losses on my taxes? For reference, my state is NC.

Regards

[rjs]

If the activity always operates at a loss, it's not a business, it's a hobby. You cannot claim losses from a hobby. If you have any income from the hobby, you can deduct expenses from the income so that you do not pay any tax on the income. But if the expenses are more than the income, you cannot claim the loss.

For an activity to be treated as a business on your tax return, it has to be conducted with the intent to make a profit, and it has to actually make a profit in most years.

[rjs]

Here's some information on the IRS web site about how to determine whether an activity is a business or a hobby.

Earning side income: Is it a hobby or a business?

[Carl]

I've not read any updated pubs on statutes on this lately. But basically, it's fairly common for a new business to not show a profit for anywhere from the first year of business, through the third year of business. However, if you're not showing a profit by the fourth or fifth year, you can fully expect it to get the attention of the IRS.

Weather it takes you 2 years or longer to actually show a profit, depends on what the business is. As to the number of consecutive years you show a loss before it gets the IRS's attention, depends on what the average is for whatever type of business you have.

[tagteam]

Just to add a footnote to this topic, per Section 183 of the Code, there is a (rebuttable) presumption that the activity is engaged in for profit if gross income exceeds deductions for 3 or more of the last 5 taxable years.

See also https://www.irs.gov/publications/p535#en_US_2021_publink1000208644

On the other hand, there is no corresponding presumption that the activity is not engaged in for profit after a specified number of taxable years where the activity incurs net losses.