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What qualifies as "business" for Sched C purposes?

Sched C instructions seems to have only this "definition" of a business (from the introduction): "An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity. For example, a sporadic activity or a hobby does not qualify as a business." That's a very "fuzzy" definition. As I understand that definition, I do not actually need to have any income. That simply needs to be my "primary purpose" (with "continuity and regularity") -- cross my heart and hope to die :-). I thought there was a more rigorous requirement; for example, I had to have income in N of M years (3 out of 5 years, as I recall). In any case, my question is: is there an IRS Pub or other document with a more rigorous definition of "an activity that qualifies as a business"? Also, I really do not know how to answer Line 32 of Sched C. My only "investment" in my (business) activity is the annual expenses that I incur. Does that qualify for Line 32a ("all investment is at risk")? None of the examples for Line 32b ("some investment is not at risk") in the Sched C instructions seems to apply.

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Reply to
nomail1983
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None that I'm aware of. IRS' definition of a business is essentially the common law one. What is your actual situation? W/o facts and $$, no one here can help much.

Fred F.

Reply to
TxSrv

There used to be a safe harbor, that if you had *profit* often enough, the activity would be classified as a business rather than a hobby.

Yes. There used to be a loophole where you could borrow money via a "non-recourse loan" (one that need only be paid out of revenues from some specific activity), use that money to buy something (e.g. US rights to an Indian movie), take deductions and credits based on the "investment", and then not have to pay the loan because the movie never showed in the US. (The loan would come from the same company you bought the rights from, so they weren't out anything when you didn't pay it; you'd pay something like $10,000 cash out of your own pocket to set up the deal at $1,000,000.) (In theory, when the loan became due and wasn't paid, you'd have phantom income from its discharge; most people just changed accountants and didn't tell the new one about the deal.) Since all the money in the business is real money out of your pocket, "all investment is at risk". That applies even for (e.g.) a consulting business in which there is no investment. All the $0 is at risk. Seth

Reply to
Seth Breidbart

Probably not, but there are court cases galore which deal with the issue.

In order to answer your questions, we need to know what kind of business do you think you're in? And why would there not be any income? It's a puzzlement. ChEAr$, Harlan Lunsford, EA n LA

Reply to
Harlan Lunsford

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