"BR" <bobrkirk2[at]telcen.com> wrote

- quote -

What happens is that after 5 years of losses (longer for
horse racing I believe), the full burden of proof that you
have a legitimate business activity (as opposed to a hobby)
falls on you. If you have profits in two of five years,
then you are presumed to be in a business (the burden falls
to the IRS to prove otherwise).

We probably all have clients that continue to show losses
for more than a 5 year duration, that never have been
questioned about their profit motive.

--
Paul Thomas, CPA
paulthomascpapc[at]bellsouth.net

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BR wrote:

- quote -

OK. To shift the burden of proof to the IRS that you lack
the required intent to make a profit, you have to be
profitable in 3 years out of 5. If you lose money 3 years in
a row, including the first 3 years of business, the burden
of proof is on you and the IRS isn't going to wait two more
years if they've already decided to audit you.

If you make a profit in 3 of 5 years the IRS may still
assert that you do not have the required intent to make a
profit in the activity. However, the burden of proof is now
on them.

Note that in almost all tax audit situations, which are
civil proceedings, the burden of proof is on the taxpayer to
show the return is correct, NOT on the IRS to show that it
is wrong.

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Paul Thomas, CPA wrote:
- quote -

Usually, you get 5 years to start making a profit, before
the IRS considers it to be a "hobby" rather than a bonafide
business. Corrections invited.

--

Remove the TOS star ship captain to reply.

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<zyuvi-usenet[at]yahoo.com> wrote:

- quote -

as an author, you are generally on the cash basis of
accounting you need to document your writing activitities
expenses incurred in writing a book are only deductible in
the year that they are incurred given the hobby loss rules,
you should address the profit motive issues

___________________________________
<<< Benjamin Yazersky, CPA [NJ & NY] > > -----> real address on hobokeni or hobokenx <-----

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<zyuvi-usenet[at]yahoo.com> wrote

- quote -

That is what you would be, a self-employed writer. You'd
have to tighten up your records though, not only to prove
the expenses, but that your activity is being done with the
intent to turn a profit.

- quote -

Same for any self-employed person.

- quote -

Yes.

- quote -

To a degree, yes. Economics kicks in after a while and you
have to give up the sinking ship.

- quote -

Yes. Be aware though that having large business (writing)
expenses being deducted against ordinary income draws
attention. If you get audited, you might be on the hook to
prove your profit motive.

--
Paul Thomas, CPA
paulthomascpapc[at]bellsouth.net

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By day, I work at a high-tech company (as an employee to the
company), but by night, I write fiction on my own. I am
currently trying to sell my novel and I have made little
money at my fiction writing (a few awards and story
publications here and there), but I'm wondering if I could
consider this a business over the next year. Can I consider
myself a sole proprietor? What are the laws with regard to
this? Can I work another job? Can I lose money as long as
I'm trying to make money? Can I write off expenses with
regard to this endeavor?

Thanks for any information!

~yuvi

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