Quote:
Originally Posted by capesams
What I was saying is that if you sink[spend] $10,000.00 in setting everything up..they give you 3 years to break even on what you've spent...expenses vs profits....after those 3 years are up that you should be making a profit beyond expenses..otherwise something starts to smell fishy to them.You can't have a loss in your operation year after year after year.
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Close - but no cigar Steve. You're referring to the IRS "hobby/loss" rules . . . the general guidance is that if you don't generate a profit in 3 out of 5 years the IRS may question whether the "business" is just a "hobby". The usual example in business school is and "artist" that goes into business . . . may sell a painting or two generating some income but expenses greatly exceed income. The IRS will let it slide for several years but may question it at some point as a hobby. The best way to demonstrate it is a "business" is advertising, business cards, a store location, etc.
I can think of many businesses that go thru cycles of loosing money for many years . . . hospitals for instance.
Some one page JPowers - he's the real accountant around here
