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TaxCoach™ Is Plain-English Tax Planning —
That Builds Your Business Year-Round
Business Tax Strategies: Hobby Business Losses
from TaxCoach™ Briefs
Volume 2, Number 19 — May 10, 2007
by Edward A. Lyon, JD
Hobby losses have always been a source of confusion. Internal Revenue Code Section 183 restricts taxpayers from deducting losses from activities not 'engaged for profit,' which limits its usefulness among business tax strategies. Taxpayers who show income for three years out of five are presumed to be engaging in the activity for profit -- but this leads many clients to believe, incorrectly, that they can't show three or more years of losses for an activity.
As I mentioned in this week's Marketing Minute, the Tax Court has just issued an opinion (Topping v. Comm'r, TC Memo 2007-92) letting a taxpayer deduct losses from her equestrian activities because the contacts she made while riding generated triple her expenses in revenue. The Tax Court stated very explicitly that 'expenses for personal pursuits do not become deductible expenses simply because they afford contacts with possible future clients.' However, in this case, the Court found the taxpayer's design and equestrian activities to be 'part of an integrated business plan' and that her 'clientele is almost exclusively derived from her equestrian contacts.'
You'll find this case discussed and footnoted in the Module entitled 'Document Business Intent to Preserve Tax Breaks.' It's in with the 'Your Business' tax strategies on the Reports screen.
Click here to learn more about business tax strategies from TaxCoach™.
Small Business Tax Strategy . . .
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