LLC and IRS

Victoria202
Victoria202 Member Posts: 6 Newcomer
in Situation & Life Changes

If you have been trying to get your business off the ground, and you had your LLC for 4 years, but always in the negative, can you still report gains and losses and get a deduction. my tax lady says after 3 years it not good to have a llc in the losses, the IRS will consider it a hobby.

is it hard to open and close a llc?

Comments

  • GregW
    GregW Star Posts: 27 image

    There is no hard and fast rule for how many years a business can operate at a loss. Tax law provides that if a you show a profit in three out of five years, you should be okay. If not, the IRS may consider it a "hobby". Some questions they may ask (see also IRS Publication 5558):

    Do you have a profit motive? (Do you have a business plan showing how and when you intend to make a profit? Do you operate in a business-like manner?)

    Is the business your main source of income or are you using large losses to offset other income?

    Is there an element of pleasure or recreation in the activity?

    Is having this many years of losses normal for similar businesses?

    If the activity is deemed a "hobby" and you are unable to convince the IRS (or a court) otherwise, they may disallow expenses associated with the business (but any income will still be taxable).

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