I had income as a band musician (2 years of profit followed by 2 years of loss) I now work alone doing weddings. Is this considered the same business? This isn't a hobby.

[ninabina62]

I have invested in an elaborate sound system in 2016, thus creating another year of loss.  If I report another loss, the IRS may consider my business a hobby and disallow all expenses.  This is not a hobby.  It is only similar to the 4 prior years in that it is still work as a musician, but the structure is different.

[AnnetteB · Accepted solution]

Just because your business reported on Schedule C has had a loss for the last two years and will incur another loss for 2016, it does not mean that the IRS will immediately deem it to be a hobby.  There are many factors involved in determining when a small business is truly a hobby.  Take a look at some information from the IRS website showing some of the factors that would be considered: 

https://www.irs.gov/help-resources/tools-faqs/faqs-for-individuals/frequently-asked-tax-questions-an...

One way to mitigate some of the losses that may be incurred for the 2016 return would be to be sure to depreciate the sound system as an asset for the business so that the cost will be spread out over the next few years instead of deducting the full cost in 2016.  This will also be helpful to you in the future years as your restructured business starts to make a profit.