An ongoing issue with a start up business are the losses sustained while getting the business going. In a recent court case, a business had a long series of annual losses. Losses do not always mean an activity is a hobby, according to the Tax Court says, overruling IRS.
This business was a teacher who also coached track. He set up a business to give private coaching to young athletes. Although he had a string of annual losses, he acted in a businesslike manner, attending clinics, going to meets and camps to get the word out, and keeping a separate bank account.
He also consulted an expert on how best to promote his business and implemented the advice he received. It also helped that after the years at issue in this case, one of his athletes blossomed and turned pro, and his coaching income rose enough so the business was profitable. He can deduct his coaching losses on Schedule C.
Parks, TC Summ. Op. 2012-105