Re: Hobby vs. Engaged in For Profit Business, Preserve For Profit Status.
Many persons have lost jobs and are pursuing of career opportunities to provide for themselves and their family by engaging in a sole proprietorship.
The Internal Revenues Service (IRS) issued Audit Guide in June, 2009 designated as IRC s/s 183:
Activites Not Engaged in For Profit (ATG). This 43 page audit guide (available at irs.gov) provides information to IRS auditors to distinguish between a business activity and an activity not engaged in for profit, which may have certain deductions disallowed and/or limited.
The manner in which the sole proprietor conducts the business is very important to preserve a For Profit status of the business. Below are a few suggestions to help preserve business deductions:
-Keep thorough and business like records/books
-Use a separate business checking account
-Use separate credit cards for business purchases
-Obtain necessary business licenses, registration, certificates, insurance, etc.
-Keep logs, i.e. vehicle mileage, of assets used for business&personal use
-Prepare a business plan
-Research market/technology trends of similar businesses
- Consult reputable advisors/ experts in the type of business
-Evaluate operations periodically to determine changes needed to improve business profitability and implement changes.
The requirements of operating a business are very wide ranging and demanding, please contact Tax Wise Inc. if you have any questions!
