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Do you operate a sideline business that produces tax losses?
Are they tax losses that you deduct on your Form 1040?
- Then be prepared to prove to the IRS that your money-losing sideline business is a valid business and not a hobby.
- You see, if the IRS can claim that your sideline business is simply a hobby, you won’t be able to deduct a dime of your losses!
Here’s how to come out a winner.
The key point is to make sure that you can show (in spite of your losses) that you are operating an unincorporated for-profit business activity.
Good to know: Assuming you actively participate in the side business, your business-loss deduction…
- Offsets taxable income from other sources
- Reduces your federal income tax bill accordingly
- Reduces your state income tax bill too, if you have one
Here’s how to come out a loser.
(and I hope you don’t!)
Here are the sad facts…
Fact #1: Current tax law wipes out all deductions from hobby activities, other than expenses, that you can write off without a business, such as mortgage interest and some property taxes.
Fact #2: Under current law, hobby-related deductions are completely disallowed for regular federal income-tax purposes as well as for alternative minimum tax purposes.
Fact #3: As before, you must still report 100% of hobby-related income as “other income” on your Form 1040. But for tax years 2018-2025, the Tax Cuts and Jobs Act has made the rules for hobbies go from bad to worse. Ouch!
Want to get the whole story and find out how to get your maximum deductions? It’s easy!
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“Is Your Sideline Activity a Business (Good)
or a Hobby (Bad)?”