taking loss on business

Forum|Forum|3 years ago
February 4, 2023
1 reply
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I have had a small side business (in addition to W2) for a few years. The business had a loss in 2018, net 0 in 2019, and a profit in 2020 & 2021. Last year I closed the business because I made no income from it. I did incur a few thousand in expenses before I closed it. Is it reasonable to claim those expenses and take a loss? Or will this cause IRS to recharacterize business as a hobby since I would have only made a profit in 2 of the past 5 years (and a loss in 2). Is it better to just eat the expenses and not claim them?

TurboTax Home & Biz Windows

MonikaK1

You should report the allowable business expenses that you incurred up to the date you ended operations. Keep good records of your expenses and of your efforts to make a profit in case of an IRS audit.

See this article for more information regarding establishing intent to make a profit. It isn't required that you have a profit for 3 of 5 years or else be automatically classified as a hobby.

See here for more information from the IRS on this topic.

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