Late Estimated Payments

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.

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.

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

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