Prior to 2018, hobby losses
were deductible as miscellaneous deductions subject to the 2% adjusted gross income (AGI) floor.
It's vital, though, to have evidence that you're trying to build a business, as opposed to, say, incurring hobby losses
. If the IRS gets your number, you can be in big trouble."View the full article from NJBIZ at http://www.njbiz.com/article/20181022/NJBIZ01/181029982/cpa-bloodhounds-follow-trail-of-tax-breaks-for-corporate-clients.
For showing business losses are not hobby losses
, an area in which profit motive is critical, the act of maintaining daily records is itself an indicator of that profit motive.
[section] 183, which governs "hobby losses
A key provision is section 183 of the Internal Revenue Code, enacted by Congress in 1969 to deal with so-called "hobby losses
"--primarily, but not exclusively, those incurred by "weekend" farmers and horse breeders.
distributions, kiddie tax provisions, vacation home rules, capital gains and losses, self-employed provisions, depreciation, hobby losses
, phase-out of itemized deductions, and casualty losses.
Since hobby losses
are limited to the extent of income, the advantageous position for the client in this situation would be that of a trade or business.
She had significant income from sources other than her art activity, income that was shielded from federal income tax by her hobby losses
, a result section 183 is intended to prevent.
Foster (21) resulted in a negative outcome on hobby losses
for the taxpayer who maintained the records for his horse racing and breeding business on QuickBooks, but did so, according to the court, only "in order to memorialize transactions for tax reporting purposes, rather than to analyze expenses to determine profitability." What the court was looking for at the least was a breakdown by the different horse-related activities, for example training, quarter horse racing, thoroughbred racing, breeding, and "pinhooking," (22) "to assess which were more profitable." (23)
are not deductible; deductions offset no more than revenues.