Hobby Loss Rules
Starting a side business on top of your regular nine-to-five job is tough. Time becomes your most precious commodity as you balance the needs of your primary work and those of a new pursuit. Combine that with the low success rate of start-ups and it’s likely that the money you spend on your business early on will exceed what you make. While it may be tempting to write off any business-related expenses as losses on your taxes during these lean years, claiming only losses on your tax return can be a potentially costly tax mistake. Why? A business that doesn’t claim a profit, especially in consecutive years, raises a “hobby loss” red flag to the IRS. To avoid this potentially costly tax misstep, it’s important to understand how the IRS determines where the line blurs between a hobby and a business and if your business is at risk. In this article, you’ll learn more about the issue, including:
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