Sch c - 4th loss year

The main thing is that you have the intention of making a profit. The

See for example

Basically, the IRS examines:

• Whether you carry on the activity in a businesslike manner. This includes, for example, keeping good books and records, promoting your business and holding down costs where possible.

• How much time and effort you devote to the enterprise.

• Whether you depend on income from the activity for your livelihood.

• If your losses are due to circumstances beyond your control or are normal for a business in its startup phase.

• Whether you change your methods of operation in an attempt to improve profitability.

• The knowledge and background you (or your advisers) have in running such a business.

• If you were successful in making a profit in similar activities in the past.

• Whether the activity makes a profit in some years and, if so, how much.

• Whether you can expect to make a future profit from the appreciation of the assets used in the activity.

• The element of personal pleasure involved in the activity. That doesn't mean you can't enjoy your new business, but you better be getting more out of it than just a good time.

I'd say having revenues are the most important thing as it suggests you are doing something, but it sounds like you have revenues of at least 146k.

The code does not use the words "hobby loss." Instead, it refers to "an actvity not conducted for profit." So, if you can establish that you have made a true effort to make money, the so-called hobby loss rules do not apply. You should be able to document the things you have done or are doing to make a profit (see the provious response.)

Continue to claim the usual expenses, including depreciation, and have the documentation ready to show IRS that you are really conducting a business.

Lanny K. Williams, CPA Nawarat, Williams & Co., Ltd. Income Tax Services for Expatriate Americans

What does your business plan say about when you are expected to break even or make a profit? You should have a business plan, review it and update it periodically, and follow it. If you aren't meeting the goals of your plan you should be working with an advisor to evaluate your plan and find out why you aren't on track, then modify the plan to account for necessary changes. IF you're doing all that, you should be OK with the loss.

If you aren't doing all of that - or any of it - then you'll have a problem if the IRS looks at your return. You make enough money on your day job that the IRS will likely try to classify your guitar making activity as a hobby - ESPECIALLY if you don't have a plan that has been reviewed and updated periodically.

The key to surviving an IRS audit is in conducting your business like a business. If you intended to make a profit you may need to be able to show the IRS how you came to that conclusion. If you're not making money, what have you done to find out why - more importantly have you documented this? And what are you doing now to correct the situation?

What you may not want to hear is that your activity really is a hobby because the industry won't support your model. If that's the case you may well have a hobby.

Good luck, Gene E. Utterback, EA, RFC, ABA

Where? It looks like OP has a day job paying $150K, which has nothing to do with the part-time Sch C business.

Seth