requires that a business must make a profit at least three years in any five -- otherwise, it is deemed a hobby and all deductions
are disallowed for the entire five years. If a business does not earn a profit during the first two years, the IRS will deem it a hobby, unless the taxpayer files an election to postpone the determination until the end of the fourth tax
year. The risk is that the business will incur continued losses, and all of them will have to be retroactively adjusted, with a multiyear tax liability
as a result. The better process is to simply close the business after the first year, and start a new business. This generally requires forming an S Corporation or LLC
with a separate Employer Identification Number (EIN). Or, if you believe that the business will be profitable in its second year, then take the deductions, and there won't be a problem. Re the 1099-Misc
, that's Schedule C income, because it presumably relates to the business activity. I hope this clarifies my original answer. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer -- otherwise, the website retains your entire payment, and I receive nothing for my efforts in your behalf.Thanks again for using Justanswer!