We all know that a home business is one of the best ways to reduce taxes. The Internal Revenue Code is full of tax deductions, exclusions and credits for businesses. Of course, because of all of these benefits, the IRS is always on the lookout for abuse. One of the abuses they look for is hobbies that people "mistakently" report as businesses.

Q: When is a business a business and not a hobby?

A: The IRS recently provided additional guidance on this, citing several factors that make a business a business and not a hobby:

1. Does the time and effort put into the activity indicate an intention to make a profit?
2. Does the taxpayer depend on income from the activity?
3. If there are losses, are they due to circumstances beyond the taxpayer's control or did they occur in the start-up phase of the business?
4. Has the taxpayer changed methods of operation to improve profitability?
5. Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?
6. Has the taxpayer made a profit in similar activities in the past?
7. Does the activity make a profit in some years?
8. Can the taxpayer expect to make a profit in the future from the apprication of asets used in the activity?

An activity is presumed to be for profit (and not a hobby) if it makes a profit in 3 out of the last 5 years. This may become a problem for many businesses in the current depression (yes, I said depression, not recession). So keep these other factors in mind. The more you meet, the more likely your losses will be allowed. Of course, if you have a profit, you don't really need to worry. So, the ultimate solution is to develop the Strategies and Systems you need, such as those we teach at http://www.provisionwealth.com/wealthstrategyu in order to make outstanding profits.

Remember that with the right Systems and Strategies, "Your Financial Freedom is Closer Than You Think."

Warmest regards,

Tom