Tag Archive for hobby loss

When Does A Hobby Become A Business?

Many people enjoy hobbies and even earn money as a result. That income is reportable and business related to the income may be deductible so long as the activity is not truly a hobby. The way the activity is treated is important in determining whether the government will recognize the activity as a business. The IRS will analyze whether the activity is conducted in a businesslike manner, whether the taxpayer intends to make a profit, the amount of profit, current employment, efforts to increase profit and the causes of losses, along with other criteria.

If the activity is deemed to be a hobby, then the related losses are limited. For more information visit the IRS’ website.

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Written by | Posted in Individual • Small Business

Trader or Investor

Trading and Investing tipsI have another new client who is a day trader and wow is he good at it! Even though he has another job he makes so much more money as a trader that this ultimately is his primary vocation. The following are a few things I’ve learned in helping this new client with his tax obligations.

1. If you are a day trader who has not elected to mark your portfolio to market accounting method under Internal Revenue Code 475 your expenses are deductible on IRS Form 1040 Schedule C.

2. The most commonly referenced Business Code provided on the Schedule C is 523900. Other financial investment activities (including investment advice) and in my opinion is the most appropriate for a person that meets the definition of “day trader” regardless of the accounting method chosen.

3. Regarding expenses, lodging and meals while away from home at investment seminars are allowable deductions assuming you actually qualify as a day trader under IRC Sec. 274(h)(7) which denies a Sec. 212(l) deduction for (non-business related) “expenses allocable to a convention, seminar, or similar meeting.” However, the Tax Court held that a day trader can deduct the cost of a seminar in securities day trading and related travel expenses under IRC Sec. 162. Read More

Written by | Posted in United States