Blog Post by Robert B. Teuber.
This post is the start of a series on what are known as the Hobby Loss Rules. When audited, if the IRS determines that your business is really just a hobby, it can result in a substantial tax liability that you and your business simply cannot afford. However, knowing the rules concerning when an activity constitutes a “business” or a “hobby” (called an “activity not engaged in for profit”) can help you structure your business affairs to defend against a hobby loss audit. The IRS has stepped up its enforcement action in asserting that businesses are hobbies.
In fact, in mid-2009 the IRS released an updated publication for auditors to provide guidance in conducting hobby loss audits. Click here for the audit guide.