Part-Time Entrepreneurs: Is Your Loss Deductible? Check the IRS Hobby Loss Rule
February 28th, 2008 12:08pm EST in Entrepreneurship, Taxes | Comments (0)
If you, like me, are a nine-to-fiver and a part-time entrepreneur, the IRS is not going to congratulate you for your hard work, but they will take their cut. Did your side-gig take a loss last year?
You may be able to deduct that loss and beef up any refund you are owed. But be careful: Deduct a business loss for more than a couple years in a row and you may be flagged for a painful audit.
The IRS has recently caught on to taxpayers utilizing self-defined business losses to reduce their total income and, subsequently, their tax liability. As a result, the IRS has instituted the so-called hobby loss rule.
There is no way to easily distinguish between a for-profit business and a not-for-profit hobby. Whether you are a photographer who shoots weddings, a musician who plays a few gigs, or a blogger with advertising revenue, whether you earn $1 a year or $100,000, your side work could be considered either: a business, or a hobby. Continued
