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Hobby versus a for-profit Business: Do you know the factors the IRS uses for determining if an activity is engaged in for profit?
Generally, if the taxpayer earns a profit in at least three of the last five years, a presumption is made that the activity is for profit. This is a safe harbor rule (which is statutory), which if not met the taxpayer must establish a profit motive using the following factors:
The regulations list nine factors that will be taken into account in determining whether an activity is engaged in for profit. No one factor is determinative in making this determination. This list is not exclusive and other factors may be important. Not all of the factors will apply to each case. The factors are:
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