Business or Hobby: Which is It?. All audio is streamed through your computer speakers. There were several attendance verification questions presented during the LIVE webinar to qualify for CPE of the LIVE event only.
Business or Hobby: Which is It?
All audio is streamed through your computer speakers.
There were several attendance verification questions presented during the LIVE webinar to qualify for CPE of the LIVE event only.
For the archived/recorded version of this webinar, the link at the end of this presentation will be to final exam on the topics and learning objectives covered during this webinar plus there are also 3 online review questions to answer per hour.
Business or Hobby
That is the Question
IRC §162 & 183
Presented by Andrew G. Poulos, EA, ABA, ATP
Upon completion of this webinar you will be able to:
“To prevent taxpayers from continually deducting losses in potentially not-for-profit activities to reduce their tax liabilities.”
a) Carrying on Trade or Business
b) For Production of Income
Deduction for all ordinary and necessary expenses
1) Production/collection of income,
2) Management/conservation/maintenance of property held for production of income, and
3) Connection with determination, collection, or refund of any tax
S CorporationsNOT C Corps
3. Deductions that reduce basis taken last
Depreciation and Amortization
Only to extent gross income is more than deductions taken in step 1 & 2
IRC allows deduction of expenses:
1) In trade or business – IRC § 162
2) Production or collection of income, management, conservation or maintenance of property held for production of income – IRC § 212
All income, including sales, exchanges or dispositions and all other gross receipts
Reduced by COGS
Personal or nondeductible items will be excluded by IRS Examiner.
AGI affects many items:
Adoption expense credit
Interest on education loans
Problem with Code § 183
Many not-for-profit expenses are reported on Schedule A – Miscellaneous
Not deductible for AMT purposes
Review Questions for Self Study CPE:
Now’s the time to answer the first set of review questions.
Engaged in activity for profit
3 out of 5 years
2 out of 7 for horse activity
Taxpayer is allowed to postpone determination of § 183(d) presumption.
Commissioner generally accepts taxpayers justification of interconnected activities UNLESS cannot be supported and each activity treated separately.
The provisions of IRC § 183 do not apply to C corporations.
Form 5213 is rarely used by taxpayers until IRS proposes to disallow the activity as not engaged in for profit.
The IRS Examiner should:
1. Secure fully completed and properly signed Form 5213
2. Advise taxpayer of suspense process and to retain all pertinent books and records for each of the presumptive years
1. Who Should File
2. When to File
3. Automatic Extension of Period of Limitations
Practitioners should use to determine if activity is or is not for profit:
Background and general description of the business.
How are the business records maintained?
What efforts are made in terms of attracting customers and securing suppliers or products necessary for the business?
When is a profit expected?
1998$16,093$ 7,586 $ 8,507
1999 6,363 1,280 5,083
2000 15,328 8,790 6,538
2001 16,565 8,192 8,373
2002 19,328 11,042 8,286
2003 23,218 4,363 18,855
2004 21,828 400 21,428
2005 26,113 1,325 24,788
2006 34,135 18,299 15,836
2007 46,995 5,975 41,020
2008 82,900 7,700 75,200
Arlene reported an additional loss of $75,200
Rent at hotel$ 400.00
Rent – 2 other rooms$ 550.00
Annual cost$ 11,400
Disputed cost$ 6,339
EA took 50% as business$ 1,092
Plus rent for 2 other rooms$ 4,754
Loft rent$ 6,175
Warehouse storage $ 819
No rent for Martha’s Vineyard
Mr. Goodman, EA – 8 years
Review Questions for Self Study CPE:
Now’s the time to answer more review questions.
Thank you for participating in this webinar.Below is the link to the online survey and CPE quiz :
http://webinars.nsacct.org/postevent.php?id=10802 Use your password for this webinar that is in your email confirmation.
You must complete this survey and the quiz or final exam (for the recorded version) to qualify to receive CPE credit.
National Society of Accountants
1010 North Fairfax Street
Alexandria, VA 22314-1574
Phone: (800) 966-6679