(Yes, I know people usually ask this question the other way around.)
My computer consulting business hasn't made a profit in the last three years. If the IRS were to look closely at it, they would most likely consider it a hobby. I want to avoid any possible audit by filing as a hobby this year. I don't want to close the business, as I may do some off-and-on work for some clients in the future. What do I need to consider?
In the past I've simply been filing schedule C. I have no employees, and my only assets are a couple of computers, one of which I'm still depreciating, and some software which I deducted in the first year or two of business. I have been deducting business use of my home office every year. My locality does not require any special business licenses, but I have a sales tax license and LLC registration with my state (WI). I do have an EIN, which the bank wanted for my business checking account, which I may close soon.
Do I have to file any special forms to let the government know I'm not working as a business right now? Do I have to pay taxes on deductions I've made on this business in the past? Do I have to cancel my EIN or LLC if I'm not filing taxes as a business?
ChristineL | Former Moderator |
1/27/2010 - 9:06 am
Hi Linzer,
According to the IRS, 'If your hobby makes a profit every year or so, you must report income to the IRS from almost
all sources, including hobbies.
If your activity is not carried on for profit, allowable deductions
cannot exceed the gross receipts for the activity. If you are
conducting a trade or business you may deduct your ordinary and
necessary expenses.'
Make sure you determine if it is a hobby and not a business before you file.
ChristineL | Former Moderator | 1/27/2010 - 9:06 am
Join The Discussion
You must be logged in to join the discussion. If you already have an SBA Community account, Log In to join the discussion.
New users, Register for a new account and join the conversation today!