Thursday, August 27, 2009

Is Your Business A Hobby? The IRS Might Think So.

This post is the start of a series on what are known as the Hobby Loss Rules. When audited, if the IRS determines that your business is really just a hobby it can result in a substantial tax liability that you and your business simply cannot afford. However, knowing the rules concerning when an activity constitutes a “business” or a “hobby” (called an “activity not engaged in for profit”) can help you structure your business affairs to defend against a hobby loss audit.

The IRS has stepped up its enforcement action in asserting that businesses are hobbies. In fact, earlier this year the IRS released an updated publication for auditors to provide guidance in conducting hobby loss audits. Click here for the audit guide.

In the upcoming weeks, check back on this blog to read more about what the hobby loss rules say and how you can use these rules to defend against a potential audit. To see all the posts discussing hobby losses, click on the “Hobby Losses” link at the bottom of this post.

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