The IRS takes the position that an activity is presumed/considered "for profit
" if it is profitable at least three years out of every five. If you file three tax returns showing that you have three years of losses, the IRS will send a letter asking you to waive the statute of limitations for its determination that your business is "for profit." If you agree, then you will be allowed to continue for another year, before the IRS decides whether or not to audit you. If you refuse, then you may
be audited immediately, in which case, your deductions to the extent that they exceed your revenue may be dissallowed.
So, even if you make $1.00, you are better off than you would be were you to report three consecutive Schedule C losses. You may want to consider limiting your deductions to the amount of your revenue, so that you can show a small profit, and avoid the almost certain audit letter that would occur.
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