Navigating the Hobby Loss Rules
Please see below for additional instructions and information regarding this program.
Taxpayers are responsible for reporting income from all activities, whether those activities are engaged in for profit or not. The crucial difference, however, is that so-called “hobby” activities cannot generate losses and, in the advent of the Tax Cuts and Jobs Act, cannot give rise to deductions to offset that income. IRS classification of an activity as not being engaged in for profit can be devastating. In this webinar we will look at the specific rules that need to be understood to ensure that an activity will be treated as a business, preserving tax benefits that might otherwise be lost.
Topics covered include:
• Meeting the “businesslike manner” standard
• Conducting operations in ways to assure business treatment
• Recent cases demonstrating how the courts approach the issue
• Practical tax filing strategies and their implications
- Business or Hobby? 00:02:00
- Requirement for Business Deductions 00:05:08
- What Difference Does It Make? - Income 00:06:49
- What Difference Does It Make? - Reporting 00:10:03
- What Difference Does It Make? - Business/Hobby 00:12:53
- Safe Harbor Presumption of Profit Intent 00:14:12
- Safe Harbor Presumption of Profit Intent (cont’d) 00:18:09
- Safe Harbor Presumption of Profit Intent -Example 00:21:24
- Safe Harbor Presumption of Profit Intent -Example (cont’d) 00:22:26
- Safe Harbor Presumption of Profit Intent -Example (cont’d) 00:23:14
- Safe Harbor Presumption of Profit Intent -Example (cont’d) 00:24:27
- Safe Harbor Presumption of Profit Intent - The IRS 00:25:20
- Election to Postpone Presumption 00:26:25
- Election to Postpone Presumption (cont’d) 00:27:48
- Election to Postpone Presumption (cont’d) 00:29:51
- Election to Postpone Presumption - Form 5213 00:30:36
- Election to Postpone Presumption - Advantage/Disadvantages 00:31:34
- Nine Factors 00:33:33
- Manner in Which Activity Carried On 00:37:53
- Expertise of Taxpayer or Adviser 00:39:14
- Time and Effort Expended 00:41:47
- Expectation of Appreciation 00:42:36
- Success in Other Activities 00:46:10
- History of Income or Loss 00:47:20
- Amount of Occasional Profit 00:48:00
- Financial Status of Taxpayer 00:49:29
- Elements of Personal Pleasure 00:50:26
- Kurdziel, Jr. V. Commisioner, TC Memo 2019-20 00:53:34
- Kurdziel, Jr. V. Commisioner, TC Memo 2019-20 (cont’d) 00:57:23
- Kurdziel, Jr. V. Commisioner, TC Memo 2019-20 (cont’d) 00:59:04
- Kurdziel, Jr. V. Commisioner, TC Memo 2019-20 (cont’d) 01:01:07
- Kurdziel, Jr. V. Commisioner, TC Memo 2019-20 (cont’d) 01:02:37
- Kurdziel, Jr. V. Commisioner, TC Memo 2019-20 (cont’d) 01:03:41
- Kurdziel: Manner in Which Conducted 01:04:09
- Kurdziel: Expertise of Taxpayer 01:07:05
- Kurdziel: Time and Effort Expended 01:08:34
- Kurdziel: Success in Other Activities 01:10:03
- Kurdziel: History of Income or Loss 01:10:56
- Kurdziel: Amount of Occasional Profit 01:11:52
- Kurdziel: Financial Status of Taxpayer 01:12:12
- Kurdziel: Elements of Personal Pleasure 01:12:47
- Kurdziel: Expectation of Appreciation 01:13:33
- Kurdziel: Taxpayer Losses 01:14:42
- Storey V. Commissioner, TC Memo 2012-115 01:15:10
- Storey V. Commissioner, TC Memo 2012-115 (cont’d) 01:16:14
- Storey V. Commissioner, TC Memo 2012-115 (cont’d) 01:17:43
- Storey V. Commissioner, TC Memo 2012-115 (cont’d) 01:18:30
- Storey V. Commissioner, TC Memo 2012-115 (cont’d) 01:19:34
- Storey V. Commissioner, TC Memo 2012-115 (cont’d) 01:20:54
- Storey V. Commissioner, TC Memo 2012-115 (cont’d) 01:22:02
- Storey V. Commissioner, TC Memo 2012-115 (cont’d) 01:22:34
- Storey: Manner in Which Conducted 01:23:17
- Storey: Expertise of Taxpayer 01:24:24
- Storey: Time and Effort Expended 01:25:16
- Storey: Expectation of Appreciation 01:27:11
- Storey: Success in Other Activities 01:28:30
- Storey: History of Profit/Occasional Profits 01:30:22
- Storey: Elements of Personal Pleasure 01:31:58
- Storey: Taxpayer Wins 01:33:53
- One Activity or Two? 01:34:34
- One Activity or Two? (cont’d) 01:35;20
- Factors 01:36:30
- Rabinowitz V. Commissioner, TC Memo 2005-188 01:37:36
- Speaker Closing 01:39:23
- Presentation Closing 01:40:20
- Code Section 183 00:05:15, 00:33:44
- Expense 00:04:16
- Form 5213 00:30:43
- Hobby Loss 00:01:03
- Profit 00:03:56m 01:13:55
- Punitive Damages 00:08:46
- Safe Harbor 00:14:21, 00:21:28
- Section 162 00:13:05
- Tax Cuts and Jobs Act 00:11:03
Code Section 183: Activities not engaged in for profit. In the case of an activity engaged in by an individual or an S corporation, if such activity is not engaged in for profit, no deduction attributable to such activity shall be allowed under this chapter except as provided in this section.
Expense: Offset (an item of expenditure) as an expense against taxable income.
Form 5213: The IRS does provide (Form 5213, "Election To Postpone Determination as To Whether the Presumption Applies that an Activity Is Engaged in for Profit" on which you can officially elect to have the IRS wait until the first five years are up before examining the profitability of your business.
Hobby Loss: Hobby loss is the term associated with funds spent to pursue a recreational activity that is not recouped. These expenses, when paid in connection with a hobby, are deductible only to the extent of income earned by the hobby or recreational activity. A loss is not allowed for expenses in excess of hobby income.
Profit: A financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something.
Punitive Damages: Punitive damages, or exemplary damages, are damages assessed in order to punish the defendant for outrageous conduct and/or to reform or deter the defendant and others from engaging in conduct similar to that which formed the basis of the lawsuit.
Safe Harbor: A safe harbor is a provision of a statute or a regulation that specifies that certain conduct will be deemed not to violate a given rule. It is usually found in connection with a vaguer, overall standard. Under the safe harbor, a “rental real estate enterprise” is treated as a trade or business for purposes of Sec. 199A if at least 250 hours of services are performed each tax year with respect to the enterprise. ... The safe harbor requires that separate books and records be maintained for the rental real estate enterprise.
Section 162: Section 162(a) allows a deduction for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. Section 262, however, provides that no deduction is allowed for personal, living, or family expenses
Tax Cuts and Jobs Act: The Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, Pub.L. 115–97, is a congressional revenue act of the United States originally introduced in Congress as the Tax Cuts and Jobs Act, that amended the Internal Revenue Code of 1986.
Chuck Borek is a practicing attorney and founder of the Borek Group, LLC. Chuck is also a CPA, and his background includes five years as a partner in a public accounting firm. He received his law degree and MBA summa cum laude from the University of Baltimore in 1993, where he was editor-in-chief of the Law Review. He has been teaching professionally since 1989, including four years as an Associate Professor of Accounting and two years as a Visiting Assistant Professor of Law. He ha... View Full Profile
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