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> If you have a company, incorporated or not, you can write off lots of things as business expenses like transportation, buying new equipment or rent for co-wor

> If you have a company, incorporated or not, you can write off lots of things as business expenses like transportation, buying new equipment or rent for co-working spaces. Is this accurate? From what I've learned, unless you make some acceptable amount of revenue, constantly expensing "business expenses" is considered very suspect by the IRS, and is illegal... please correct me if this I'm wrong here...

troydavis 6y ago
(US-specific) You're correct, particularly if the business continues to declare a loss year after year (which it would if it was created as an excuse to itemize business deductions). While making a profit is not required, the activity must be "engaged in for profit," ie, you must be genuinely trying: https://www.irs.gov/pub/irs-utl/irc183activitiesnotengagedinforprofit.pdf https://www.irs.gov/pub/irs-utl/irc183activitiesnotengagedin... More practically, if a business continues to declare a loss, especially with little or no revenue, it will stand out. In an audit, the IRS considers 9 factors. Quoting: 1. the manner in which the taxpayer carried on the activity, 2. the expertise of the taxpayer or his or her advisers, 3. the time and effort expended by the taxpayer in carrying on the activity, 4. the expectation that the assets used in the activity may appreciate in value, 5. the success of the taxpayer in carrying on other similar or dissimilar activities, 6. the taxpayer’s history of income or loss with respect to the activity, 7. the amount of occasional profits, if any, which are earned, 8. the financial status of the taxpayer, and 9. elements of personal pleasure or recreation. A profit-seeking motive is presumed if a profit is declared in 3 of 5 consecutive years. That ninth factor covers something called a "hobby loss": "(9) Elements of personal pleasure or recreation. The presence of personal motives in carrying on of an activity may indicate that the activity is not engaged in for profit, especially where there are recreational or personal elements involved. On the other hand, a profit motivation may be indicated where an activity lacks any appeal other than profit. It is not, however, necessary that an activity be engaged in with the exclusive intention of deriving a profit or with the intention of maximizing profits. For example, the availability of other investments which would yield a higher return, or which would be more likely to be profitable, is not evidence that an activity is not engaged in for profit. An activity will not be treated as not engaged in for profit merely because the taxpayer has purposes or motivations other than solely to make a profit. Also, the fact that the taxpayer derives personal pleasure from engaging in the activity is not sufficient to cause the activity to be classified as not engaged in for profit if the activity is in fact engaged in for profit as evidenced by other factors whether or not listed in this paragraph." tl;dr: If you have meaningful revenue relative to expenses, it's probably a business. If you don't have meaningful revenue, then the other factors should be in your favor instead.

troydavis 6y ago

(US-specific) You're correct, particularly if the business continues to declare a loss year after year (which it would if it was created as an excuse to itemize business deductions). While making a profit is not required, the activity must be "engaged in for profit," ie, you must be genuinely trying: https://www.irs.gov/pub/irs-utl/irc183activitiesnotengagedinforprofit.pdf https://www.irs.gov/pub/irs-utl/irc183activitiesnotengagedin... More practically, if a business continues to declare a loss, especially with little or no revenue, it will stand out. In an audit, the IRS considers 9 factors. Quoting: 1. the manner in which the taxpayer carried on the activity, 2. the expertise of the taxpayer or his or her advisers, 3. the time and effort expended by the taxpayer in carrying on the activity, 4. the expectation that the assets used in the activity may appreciate in value, 5. the success of the taxpayer in carrying on other similar or dissimilar activities, 6. the taxpayer’s history of income or loss with respect to the activity, 7. the amount of occasional profits, if any, which are earned, 8. the financial status of the taxpayer, and 9. elements of personal pleasure or recreation. A profit-seeking motive is presumed if a profit is declared in 3 of 5 consecutive years. That ninth factor covers something called a "hobby loss": "(9) Elements of personal pleasure or recreation. The presence of personal motives in carrying on of an activity may indicate that the activity is not engaged in for profit, especially where there are recreational or personal elements involved. On the other hand, a profit motivation may be indicated where an activity lacks any appeal other than profit. It is not, however, necessary that an activity be engaged in with the exclusive intention of deriving a profit or with the intention of maximizing profits. For example, the availability of other investments which would yield a higher return, or which would be more likely to be profitable, is not evidence that an activity is not engaged in for profit. An activity will not be treated as not engaged in for profit merely because the taxpayer has purposes or motivations other than solely to make a profit. Also, the fact that the taxpayer derives personal pleasure from engaging in the activity is not sufficient to cause the activity to be classified as not engaged in for profit if the activity is in fact engaged in for profit as evidenced by other factors whether or not listed in this paragraph." tl;dr: If you have meaningful revenue relative to expenses, it's probably a business. If you don't have meaningful revenue, then the other factors should be in your favor instead.