topic No profit from LLC for two consecutive years... in Self employed

No profit from LLC for two consecutive years...

rachelrenee1 — Wed, 30 Aug 2023 19:13:04 GMT

Hello,

I am in the same boat as a lot of other people. My small business (an LLC in Michigan) has not net a profit for the last two years. I submitted all of the documentation when paying my taxes the last two years, and received the standard "maybe this is a hobby rather than a business" message last year. Should I just stop reporting this as a business altogether? I don't want any problems down the road, but for beekeeping, the expenses are high, and the revenue is negligible. Thoughts?

Sincerely,

Moneyless in Michigan

Re: No profit from LLC for two consecutive years...

zclar — Wed, 30 Aug 2023 19:24:41 GMT

Hi rachelrenee1,

I understand how tough it may be with running a business and trying to turn a profit. You are correct, if your business claims a net loss for too many years, or fails to meet other requirements, the IRS may classify it as a hobby. If the IRS classifies your business as a hobby, it won't allow you to deduct any expenses or take any loss for it on your tax return. If the IRS classifies your business as a hobby, you'll have to prove that you had a valid profit motive if you want to claim those deductions.

If you are generating income, the IRS requires you to report all your income; hobby income is no exception. You just wouldn't take deductions on that hobby.

Here are some helpful articles to help guide you further:

When the IRS Classifies Your Business as a Hobby

Here’s how to tell the difference between a hobby and a business for tax purposes

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

Re: No profit from LLC for two consecutive years...

Art EA — Wed, 30 Aug 2023 19:27:43 GMT

The IRS will determine if it is a hobby loss and if you have a large loss they could define it as a hobby loss after three years of losses. I have normally found that they will not bother to look at it with a small loss. Good luck and hope your income increases.

ArtEA