The Seventh Circuit Court of Appeals found a Tax Court ruling on a taxpayer’s horse racing business untenable. The Tax Court had ruled that, in essence, every business start-up is de facto a hobby until it shows profit.
Under IRC §183, an activity conducted by an individual or an S corporation that is not engaged in for-profit cannot deduct expenses in excess of revenues. Such businesses are deemed to be a hobby. The Code presumes that an activity is engaged in for profit when income exceeds expenses for at least 3 out of the past 5 years. In the case …read more
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