The IRS can call your money-losing business a hobby – and take away your deductions!

If your business has been losing a lot of money for a long time, the IRS could call it a hobby and stop you from deducting your losses.

Key to avoiding the “hobby” status is that your business earns a profit in three out of the last five years, including the most recent year.  Here are some other factors:

  • Does the time and effort put into the activity indicate an intention to make a profit?
  • Do you depend on income from the activity?
  • Are losses caused by circumstances beyond your control or did they occur in the start-up phase of the business?
  • Have you changed your operations to improve profitability?
  • Do you or your advisors have the knowledge needed to carry on the activity as a successful business?
  • Have you made a profit in similar activities in the past?
  • Does the activity make a profit in some years?
  • Can you expect to make a profit in the future from the appreciation of assets used in the activity?

The IRS wants to prevent a savvy taxpayer from characterizing a hobby – such as stamp-collecting or dog-breeding – as a money-losing business.

For more information:,,id=169490,00.html

About Mark P. Holtzman

Chair of Accounting Department at Seton Hall University. PhD from The University of Texas at Austin. Worked at Deloitte's New York Office. BSBA from Hofstra University.

2 Responses to “The IRS can call your money-losing business a hobby – and take away your deductions!”

  1. Reblogged this on Accountinator and commented:

    Is it a business? Or is it a hobby?


  1. Is your eBay business taxable? « Accountinator - July 3, 2012

    […] money, for too long a period of time, your online auction business could be construed as a “hobby:” no longer deductible. Click here for more information. [Image: Garage Sale In Monroe by […]

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