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Forum|Forum|2 years ago
December 17, 2023
3 replies
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Anonymous_

Level 15

You need to decide based upon the factors listed in the IRS Fact Sheet at the link below.

https://www.irs.gov/pub/irs-news/fs-08-23.pdf

Opus 17

Level 15

See this blog post.
https://turbotax.intuit.com/tax-tips/small-business-taxes/when-the-irs-classifies-your-business-as-a-hobby/L5NClTTtK

In general, if you don’t make a profit at least 2 out of the past 5 years, the IRS may assume that you are really running a hobby. However, you can rebut this presumption by showing facts and circumstances that indicate that you are running a business with a true profit motive, just that you haven’t been able to make a profit.

My suggestion is that you file your return based on your best interpretation of your facts and circumstances. If your facts and circumstances indicate that you are running a business, then go ahead and continue to file your business losses, and use them to offset your other taxable income. However, be prepared to defend yourself in case the IRS tries to rule that you have a hobby instead. You may want to hire a professional to help you make the determination.

Anonymous_

Level 15

@Opus 17 wrote:
In general, if you don’t make a profit at least 2 out of the past 5 years, the IRS may assume that you are really running a hobby.

The presumption, per Section 183(d), does not work in that manner. Rather, the presumption is simply that an activity is engaged in for profit if gross income exceeds deductions for the past 3 out of 5 years.

TomD8

Alumni - Champ

"For about 2-3 years, my 1099 was at a loss"

How long have you been filing a Schedule C? If you've filed for several years showing a net profit, and then had 2-3 years with a net loss, it's highly unlikely that the IRS will regard your business as a hobby. As an example, many realtors had a net loss when housing sales collapsed, after they'd had years of showing a profit. The IRS "gets" that this can happen.

**Answers are correct to the best of my ability but do not constitute tax or legal advice.