Quote:
Originally Posted by fishonnelsons
My accountant told me to show a profit this year, my third year in business. The "hobby" rule is linked to the five year everyone has been talking about, but my guy strongly suggested to do it sooner than later.
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It's silly to do it sooner rather than later if you have a choice, but since the hobby loss rules require showing profit in 3 of 5 consecutive years, your accountant is right on time.
FWIW, the "Hobby-Loss Rules" state that if an activity, either a business or investment, generates a profit in 3 out of 5 consecutive years the IRS must assume that you are engaged in the activity with the intent to make a profit. The IRS can however, question the validity of the specific expenses you are claiming.
If a person did not make a profit in 3 out of the last 5 years the IRS will not automatically assume that the taxpayer is not engaged in the activity with the intention of making a profit. In the absence of proof, the burden is on the taxpayer to prove by a showing of the facts for their particular circumstances that he/she intends to make a profit and have a reasonable expectation of eventually being able to do so.
Hope this helps.