Question by rothchristian: Home-based Business. What if I have next to nothing coming in for how much I am deducting in taxes?
I am looking into setting up a home based Business as a part time thing. I have a day job and I would like to do this music endeavor on the side. I want this to be legitimate but I know I will be making very little money and writing off a lot in tax deductions. Does anyone have experience in with this type of scenario? Is there a reasonable expectation that IRS has around how much revenue needs to come in for how much you are writing off? I don’t want the Business to appear fraudulent although I have more to gain from a tax deduction basis.
Answer by PepsiLime
The IRS knows that a business has to experience growing pains, but they have a rule that for a business to be considered a legitimate business rather than a hobby, it has to make a profit in 3 out of 5 years. And in your case with you saying that this is going to be something on the side, you would be walking a very fine line with the IRS after your second year. I have included info regarding “hobby loss”
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