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Ask R. Greg Paszkiewicz Your Own Question
R. Greg Paszkiewicz
R. Greg Paszkiewicz, Enrolled Agent
Category: Tax
Satisfied Customers: 357
Experience:  9 years preparing tax returns - Marietta, GA
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How many years @ a loss

Customer Question

How many years can my DBA company be at a loss?
Submitted: 11 years ago.
Category: Tax
Expert:  R. Greg Paszkiewicz replied 11 years ago.
To take losses from a business the IRS must consider the business to be operated with the intent to make a profit. You need to have a profit in 3 of the last 5 years to have the presumption that it is a for-profit enterprise. If the business is considered a hobby you cannot take any losses incurred.
Customer: replied 11 years ago.
Reply to R. Greg Paszkiewicz's Post: Thank You
Expert:  MH replied 11 years ago.
The 3 profitable years out of 5 years would be a sign of running the business with intent to profit, but if you have losses in all the years then you can establish the intent to profit by showing you have material participation (at least 500 hours per year) in running this business and you conduct certain activities that would be similar to those in legitimate business. (Disclaimer: this is not a legal or tax advice, facts and circumstance would determine the proper tax and legal implications and treatments) http://www.mhbusiness.com
Expert:  R. Greg Paszkiewicz replied 11 years ago.
This is the relevant section (see below) to your question, it lists 9 characteristics of a business carried on for profit, i don't think any are necessarily definitive, if you meet the majority of these criteria you should be in a defensible position.


In determining whether you are carrying on an activity for profit, several factors are taken into account. No one factor alone is decisive. Among the factors to consider are whether:

You carry on the activity in a businesslike manner,

The time and effort you put into the activity indicate you intend to make it profitable,

You depend on the income for your livelihood,

Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business),

You change your methods of operation in an attempt to improve profitability,

You, or your advisors, have the knowledge needed to carry on the activity as a successful business,

You were successful in making a profit in similar activities in the past,

The activity makes a profit in some years, and

You can expect to make a future profit from the appreciation of the assets used in the activity.

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