bgriffin, that's exactly what all of the tax preparers who have done my business returns over the last 25 years have said. Two of these folks were CPAs and the other one, who does my taxes now, is a certified tax and investment specialist (or some such designation).
For example, when I sold real estate part time, there was a run of three years where I showed a loss after all deductions, and I was worried about this "hobby" rule. But my CPA told me that as long as I was out there trying to sell, which I was, and marketing my services, which I was, that I didn't need to worry about this. Actually, real estate was my second source of income, but he said I was still OK.
When I was doing marketing communications and consulting (which was my primary income source), I showed a yearly profit up until I "semi retired," but again, that was my primary business and I could prove it, so no problem.
Now that I'm engaged in another business, and actively pursuing it as my primary source of income, my tax guy says the same thing--as long as I can prove I'm working it as a true business and not just using it to decrease my taxable income, I am OK. He says he's never had the IRS use that "hobby" rule for any of his clients.... That's just his experience, of course, but there it is. If I were, for example, a teacher who sold antiques and collectibles at shows I traveled to only during the summer, that would probably be an entirely different matter. The "hobby" rule would likely apply after three years of losses.
bgriffin Wrote:
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> I was told a few weeks ago that they might assume
> it's a hobby, and they may try to bill you for
> extra taxes, but if you can prove that it's a
> legitimate business that operates at a loss the 3
> out of 5 year rule does not apply. Disclaimer:
> this did NOT come from an accountant or tax
> preparer, but it did come from someone who has run
> businesses before that have operated at a loss,
> does his own taxes as well as the taxes of most of
> his extended family, and I feel like he's pretty
> well informed. I would be interested to hear what
> an actual accountant has to say about it.
I learn something new every day, but not everyday!
I've learned to never trust spell-check or my phone's auto-fill feature.