Recently I posted about a golfer that had hobby winnings. I have had several people email me asking what the difference was between a hobby and a true business.
Here are the factors that the IRS and courts look at:
1. The manner in which the taxpayer carried on the activity
2. The expertise of the taxpayer or his or her advisers
3. The time and effort expended by the taxpayer in carrying on the activity
4. The expectation that the assets will appreciate in value
5. The success of the taxpayer in carrying on activities
6. The history of profits or losses
7. The amount of occasional profits
8. The financial status of the taxpayer
9. The elements of personal pleasure or recreation
No single factor controls and other factors may be considered. If you make profit in 3 of the 5 years the IRS thinks you are okay. This is 2 of 7 years for breeding, showing, training or racing horses.
Keep good records. DOCUMENTATION! DOCUMENTATION! DOCUMENTATION!
