you face another issue. hobby loss.
hobby loss rules disallow losses of activities if the IRS concludes that you're not engaged in it for profit activity. Profit must be demonstrated for any three out of five consecutive tax years. it occurs if the iRS audits and you can not provide sufficient information like a business plan to show that the activity hopefully it will be profitable.
Here are nine things taxpayers must consider when determining if an activity is a hobby or a business:
Whether the activity is carried out in a businesslike manner and the taxpayer maintains complete and accurate books and records.
Whether the time and effort the taxpayer puts into the activity show they intend to make it profitable.
Whether they depend on income from the activity for their livelihood.
Whether any losses are due to circumstances beyond the taxpayer's control or are normal for the startup phase of their type of business.
Whether they change methods of operation to improve profitability.
Whether the taxpayer and their advisors have the knowledge needed to carry out the activity as a successful business.
Whether the taxpayer was successful in making a profit in similar activities in the past.
Whether the activity makes a profit in some years and how much profit it makes.
Whether the taxpayers can expect to make a future profit from the appreciation of the assets used in the activity.
