- Joined
- Dec 28, 2014
It's not as simple as that. It's whether the activity is engaged in with the expectation of turning a profit. You could actually lose money for several years and still have it be considered a business. If you turn a profit three out of the previous five years, there's a safe harbor provision that creates a presumption it is a business, but circumstances can overcome that.You can but you have to hit certain revenue levels otherwise its counted as a hobby and cannot be deducted.
The IRS has a nine factor test on whether something is a business or a hobby, and would look at these if Jack got audited, which is fairly likely to happen at some point:
Source: IRS
- Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.
- Whether you have personal motives in carrying on the activity.
- Whether the time and effort you put into the activity indicate you intend to make it profitable.
- Whether you depend on income from the activity for your livelihood.
- Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
- Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
- Whether you were successful in making a profit in similar activities in the past.
- Whether the activity makes a profit in some years and how much profit it makes.
- Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
It is left as an exercise to the reader how much if any of this shit Jack has done, although if I had to make a guess, he's half-assed it if he's done anything at all and would be in deep shit if audited, especially on the last couple years where just Fat on the Go has to be losing enormous amounts of money.