| Your tax deductions are limited by the amount of | | | | you don't meet the presumption the IRS can challenge |
| income your hobby generates. If you run your hobby | | | | your deductions as hobby losses. You will then have to |
| as a business, your business expenses are deductible, | | | | prove your intentions. Some of the things you may |
| even though they may exceed business income. The | | | | have to show are: |
| difference between a hobby and a business is a very | | | | That you operated in a businesslike manner, so be |
| fine line. If you deduct your losses from a business that | | | | sure to keep accurate books and records. you will |
| the IRS considers a hobby, you must be able to prove | | | | need to show that you instituted procedures in your |
| that you are operating it with the intent to make a | | | | business to correct any past practices that resulted in |
| profit. | | | | losses. |
| As far as the IRS is concerned, a business is | | | | Do you operate your business professionally? Can you |
| something engaged in to make money. There are no | | | | show that you hired or consulted with experts in your |
| requirements however that say that you must actually | | | | field and that she took their advice. Did you make a |
| make money. The only rule is that you must intend to | | | | serious effort to make money. You must show that |
| make money. If you make a profit in 3 out of 5 | | | | you hired qualified people to run your business. It can |
| consecutive years it is assumed that you are engaged | | | | still be a part-time business, however there is no law |
| in the business for profit. Although the IRS can | | | | that says that you have to work 40 hours a week or |
| challenge the assumption, it does not usually do so. | | | | more at your business. |
| You can choose to delay any IRS determination until | | | | Is there actually a profit potential? Can you really make |
| the first five years are up by filling out an IRS form. | | | | money? Even though your business produces losses, |
| However in making this decision, you must sign a | | | | you should still be able prove an intent to make money |
| waiver of the three-year statute of limitations on | | | | by showing that any assets you may have acquired |
| sideline business items for the tax years involved. If | | | | are expected to appreciate in value. |