Hobby Loss

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Hobby Loss

A loss a taxpayer may not deduct from his/her taxable income because it occurred in the pursuit of personal pleasure. Suppose one sells lemonade for fun on Saturdays and takes a loss in doing so. This will likely be considered a hobby loss because one is not likely to be actively pursuing profit. The IRS applies what is called the "hobby loss rule" to determine whether it considers a loss to be hobby or business related; this rule states that an activity profitable three years out of every five can be considered a business. So the lemonade stand, which may never be profitable, will probably be considered a hobby loss.

Hobby Loss

A nondeductible loss arising from a personal hobby as contrasted with a loss arising from an activity engaged in for profit.
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Since hobby losses are limited to the extent of income, the advantageous position for the client in this situation would be that of a trade or business.
After first discussing the basics of deductions, it covers the following topics: hobby losses, start-up expenses, inventory, home office deductions, travel and entertainment expenses, retirement deductions, and how to stay out of trouble with the ILLS.
Hobby losses are not deductible; deductions offset no more than revenues.