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Business vs. Hobby: Which is It?

  

Determining if it’s a Business or Hobby: Questions & Items Practitioners Should Use to Analyze Case 

  • Background and general description of the business
  • How are the business records maintained?
  • What efforts are made in terms of attracting customers and securing suppliers or products necessary for the business?
  • When is a profit expected?
  • Background information about type of activity prior to start up
  • Taxpayer’s relevant education
  • Reliance on others in starting or developing business
  • Research or extensive study regarding business
  • Other life experience to prepare
  • Related organizations and how long
  • May be given more weight if no personal or recreation aspects
  • Is this a full or part-time activity?
  • Who is involved with the daily operations?
  • Profit encompasses appreciation
  • List assets used in the activity
  • If taxpayer has engaged in similar activities in the past, converting unprofitable to profitable, may indicate engaged in for profit
  • What other activities has the taxpayer had previous success?

9 Factors To Consider for Business vs. Hobby Losses

  1. Manner taxpayer carries on activity
  2. Expertise of taxpayer or advisors
  3. Time and Effort
  4. Expectation of Asset appreciation
  5. Success with similar or dissimilar activities
  6. History of income/loss
  7. Occasional profits
  8. Financial status
  9. Elements of personal pleasure or recreation
Get more great content when you view Andrew's on-demand NSA ConnectED Webinar
Business vs. Hobby: Which is It? 
Register here

Author
Andrew G. Poulos, EA, is principal of Poulos Accounting & Consulting,  Inc., in Atlanta, Ga., where he focuses working with tax clients and representing clients before the IRS. Andrew is the producer of  the QuickBooks Ultimate Lesson Guide DVD Series being marketed  nationally through wholesale and retail distribution channels. He is also  founder of Elite Tax Seminars, a division of Poulos Accounting &  Consulting, Inc. 
 Contact him at www.poulosaccounting.com. 
 
 


#BusinessIncomeTax #taxplanning #Tax #BusinessTaxes #NewsandInformation #IndividualIncomeTax #PersonalIncomeTax #taxpolicy #Consumer
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