Can a business show a loss for several years without any legal repercussions? Is there a guideline that says "ABC Inc. must show a profit after "X" number of years?
2006-12-20 14:43:42 · 3 answers · asked by McHales_navy_22 2 in Business & Finance ➔ Taxes ➔ United States
The IRS can reclass a "business" as a "hobby" if you loose money for consective years. This typically applys to like someone making and selling homemade model cars out of their house or something very small like that. If you have a legitmiate business with rent, employees, that type thing, you should be fine
2006-12-21 01:43:49 · answer #1 · answered by Anonymous · 0⤊ 0⤋
If you don't make money in at least two out of five years the IRS presumption is that it is a hobby not a business.
It is up to you to prove that it is a business and the other answers have given you information that you can look at for steps you need to take to overcome the IRS presumption.
If you know you are right don't ever cave in to the IRS just because they are the IRS. If you look at the statistics for the IRS tax answer phone service you will notice that they give wrong answers 65% of the time.
2006-12-21 06:34:52 · answer #2 · answered by waggy_33 6 · 0⤊ 0⤋
See http://www.irs.gov/faqs/faq-kw125.html for information. There's no limit to how many years a business can lose money and still be considered a business, but there are a number of factors that are considered. These are listed in this reference, in section 12.7
2006-12-20 23:19:54 · answer #3 · answered by Judy T 1 · 0⤊ 0⤋