A hobby loss is defined as a loss that is determined by the Internal Revenue Service to be the result of an activity not entered into for profit. The effect of a determination that your business is a hobby is that the loss cannot be deducted from income. This effect is usually devastating, and usually results in the taxpayer owing taxes, penalties and interest for three years WITH liabilities reaching $50,000, $100,000 and above. We routinely handle cases involving close to 7 figures.
The IRS likes to argue that certain businesses are actually a hobby because many people lose money in them due to its high risk. The rules say you have to gain a profit in two out of five to seven years (if it is a farming related activity) to be called a business. But what if you don’t? We have won many cases where there were not two profitable years. Let us ” risk assess” your return and handle any issues in this regard.
2865 South Eagle Road Unit 319
Newtown PA 18940