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Is It a Business or Hobby?

2021 – 03/18 Taxpayers engaged in business with the intent to profit can generally deduct related expenses on their tax returns. In the absence of a profit motive, the IRS may deem the activity to be a hobby and disallow loss deductions. In one case, a married taxpayer owned a brokerage firm. He also engaged in horse roping and deducted the related losses on his joint tax return. The IRS called the activity a hobby and denied the deductions, due to a lack of profit motive. The taxpayer failed to keep complete records, use a budget, or operate in a businesslike manner. The U.S. Tax Court agreed, noting that “team roping was never going to be a stable source of income” for the taxpayer. (TC Memo 2021-25)  Click here for more details.

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