loss reporting

There isn't a specific number of years that a company is allowed to have a loss.. The IRS generally uses a "safe harbor" standard that assumes that you are engaged in an activity for profit if your business reports a profit in at least three out of five consecutive years. But reporting a loss for the fourth year in a row isn't going to trigger an automatic audit. It's isn't that kind of a "bright-line" rule.

The IRS will allow deduction of business expenses if they are ordinary, reasonable, and necessary. First, though, in order to be considered to be in business at all, you must be engaged in your activity with the intent to make a profit.

Your record-keeping will go a long way towards showing the IRS that you do have the intent to make a profit, even if your business isn't currently doing well. The more business-like you are, the more likely you are to be considered a business.

There are several other factors that the IRS looks at when determining whether an activity qualifies as a business or not. You can find a great summary here: When the IRS Classifies Your Business as a Hobby 

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-- KimberW