Girlfriends Business

Today TaxMama hears from Jeff in Florida who is concerned. “Don’t you have to show an income with a small business at least one year out of five? My girlfriend has a small business that has shown a NOL for the past three years.”

Dear Jeff,

Are you policing her, or helping her? To avoid having a business treated as a hobby, the Tax Code says it must show a profit for at least 3 years out of 5.

Here’s what IRS says about all this. http://www.irs.gov/irs/article/0,,id=186056,00.html

There are ways around this. I have won on this issue many times for a variety of taxpayers. This is one of my favorite issues. In fact, I’ll be teaching a workshop on how to avoid falling into the hobby loss trap. Join me in a CSEA DigiTAX course on Aug 5, 09 – 11:00 am
http://www.csea.org/EducationandEvents/digiTAXEducation/tabid/89/Default.aspx
CSEA – Audio Tax – Hobby Loss Rules and how to Overcome Them

The basic trick is to prove you have a profit motive and you are actively doing everything you can to make the business profitable. Some businesses, or industries, generally take a longer time to start showing a profit than others. Some will not show a profit on paper for years – like rental properties. (But that’s a whole other issue.)

If your girlfriend is unsure about how to handle her business for 2008, set up a meeting to consult with a tax professional who understands how to present a business – and to reduce the chance of audits.

And remember, you can find answers to all kinds of questions about hobby losses and other tax issues, free. Where? Where else? At TaxMama.com

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• Ask TaxMama :: Where taxes are fun and answers are free
• www.TaxQuips.com :: The number ONE free tax podcast online
• IRS Fact Sheets :: Is Your Hobby a For-Profit Endeavor?
• CSEA DigiTax Courses :: Join us for Hobby Loss Rules and how to Overcome Them – in August

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