Today TaxMama hears from Jeff in Florida who is concerned. “Don’t you have to show an income with a small business at least one year out of five? My girlfriend has a small business that has shown a NOL for the past three years.
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Dear Jeff,
Are you policing her, or helping her? To avoid having a business treated as a hobby, the Tax Code says it must show a profit for at least 3 years out of 5.
Here’s what IRS says about all this.
There are ways around this. I have won on this issue many times for a variety of taxpayers. This is one of my favorite issues. In fact, I’ll be teaching a workshop on how to avoid falling into the hobby loss trap. Join me in a CSEA DigiTAX course on Aug 5, 09 – 11:00 am.
CSEA – Audio Tax – Hobby Loss Rules and how to Overcome Them
The basic trick is to prove you have a profit motive and you are actively doing everything you can to make the business profitable. Some businesses, or industries, generally take a longer time to start showing a profit than others.
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Some will not show a profit on paper for years – like rental properties. (But that’s a whole other issue.
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)
If your girlfriend is unsure about how to handle her business for 2008, set up a meeting to consult with a tax professional who understands how to present a business – and to reduce the chance of audits.
And remember, you can find answers to all kinds of questions about hobby losses and other tax issues, free.
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Where? Where else? At TaxMama.com
- Ask TaxMama :: Where taxes are fun and answers are free
- www.TaxQuips.com :: The number ONE free tax podcast online
- IRS Fact Sheets :: Is Your Hobby a For-Profit Endeavor?
- CSEA DigiTax Courses :: Join us for Hobby Loss Rules and how to Overcome Them – in August
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