We encourage a number of clients who express feelings of being trapped in a job, need to generate more money or are looking for options to think about starting their own business.
Some actually start businesses and many others don’t. For those who do we council them to play to their strengths and passions. But that there has to be a profit motive involved.
The IRS is concerned whether or not an activity is presumed to be operated for profit and requires an analysis of the facts and circumstances of each case. Deciding whether a taxpayer has operated an activity with an actual and honest profit motive typically involves applying the nine non-exclusive factors.
These are contained in Treas. Reg. § 1.183-2(b). Those factors are as follow:
- The manner in which the taxpayer carried on the activity,
- The expertise of the taxpayer or his or her advisers,
- The time and effort expended by the taxpayer in carrying on the activity,
- The expectation that the assets used in the activity may appreciate in value,
- The success of the taxpayer in carrying on other similar or dissimilar activities,
- The taxpayer’s history of income or loss with respect to the activity,
- The amount of occasional profits, if any, which are earned,
- The financial status of the taxpayer, and
- Elements of personal pleasure or recreation.
With these in mind and the proper motivation a small business can grow to into a career change. Let us know if we can assist you in fulfilling your dreams of being a business owner.