Saturday, November 1, 2008

No Profit Needed As Long As You Have A Profit Motive


I am An internet Sports Card Dealer in Gainesville, FL and have had my business for 6 years and have not made a profit to date.

I read your book Self-employed Tax Solutions. It is very helpful and you did an excellent job. While reading it, I remember a section that dealt with getting tax advisor advice to not report expenses to show a profit. You did not recommend that approach. However, I am trying to find that specific section to re-read it. Please let me know the Chapter and page.


Hi Lou,

It's Chapter One: Self-employed -- What does That Mean? It's the section: For Fun or Profit: Is your endeavor a hobby or a business? Starts on page 8.

Glad you like my book. Thanks for letting me know.

For those of you who don't have my book, I'll give an overview of what Lou refers to.

To be a business in the eyes of the IRS you don't need to make a profit, you need show only that you have a profit motive. In Self-employed Tax Solutions, I say:

"A number of books advise entrepreneurs that the best way is to just “show a profit.” That’s like telling Miles Mingus to make the charts with a hit song three years out of five … or, if that doesn’t happen, the mahogany-office accountant, Sammy Seegar, CPA, suggests that Miles forget about a lot of his expenses, pretend he made a profit and pay Uncle Sam more than is his due. Pretty bad advice!

"If you know that your self-employed business is going to make you rich someday (even though you’ve had a loss every year since you started your new venture) how do you prove to the IRS that your goal is to make a profit?"

You'll find a good part of the answer in these posts.

-- June

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