Friday, January 20, 2012

Hobby vs Business Part 1

Awesome advice from Kevin D. Walls from Genesis Tax Service:

"If you are in business and have a profit, that is great. However, if you have losses, normally the losses can be used against any form of income such as dividends, other income from jobs, rents, pensions etc. If the losses from a business exceed your total income for the year, you can carry back all business losses two years ( in Canada it is three years) or carry forward all business losses up to 20 years. However, if your endeavor is classified as a hobby, you don’t get to use any hobby losses. THEY ARE LOST. Even worse, hobby deductions are itemized deductions must exceed a threshold to be deductible at all. YUCH. Obviously, this is a big weapon for the IRS.
Fortunately, I have done a lot of research as to what you need to do. If you follow my advice, you will be a much better shape to contest any IRS or Canada Revenue Agency determination of hobby status.
Moreover, this issue becomes especially important if you are conducting what IRS or CRA considers “suspicious activities.” These include deducting losses from:
First, if you have a profit for three out of 5 years, you are automatically presumed to be a business. However, if you can’t meet this test, don’t be forlorn. As long as the majority of the factors presented below are met, you can still be classified as a business.
* Antique collecting
* Stamp and coin collecting
* travel business
* writing
* Ministerial duties
* Record recording
* Raising show horses or dogs
* Automobile racing
* Finally, network marketing due the social nature of network marketing.
Stay tuned for the tests that you need to meet,which will be published tomorrow."

Check out Genesis Tax Service's Facebook Page here...

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