Tax Question

[scmhogg]

I am probably what you would call "semi-retired". I still practice law from my home, but not at the pace I used to. I am also doing a fair amount of pro bono work. LOML is still employed as a lawyer for the county.

I have long deducted part of my home expenses, for my home office and storage.

I want to keep practicing at this level, but I am afraid th INS will say it is a hobby, since I won't be showing a "profit".

Is there a solution to this dilemma? Do I need to be a "non-profit"?

TYIA

Steve

[germdoc]

I am not a tax expert, but I would think if you are making any money whatsoever that you can declare as income you have a business that would qualify for deductions. I have long done that (at the advice of my accountant) for my work as a speaker and medical expert for legal cases.

[cgallery]

I believe the IRS says you have to make a profit three out of five years, or you're a hobby.

[crokett]

Steve, since you are a lawyer and it is probably not a problem for you to do, I would take the guesswork out of it and create a corporation, if you haven't already done so. This makes the distinction and the accounting a bit easier. My dad did this for his consulting business at the advice of his accountant. Also, once you are a corporation, you are allowed to take losses without it becoming a hobby.

[Alex Franke]

I'm with cgallery, but I thought it was 3 years in a row as a loss == hobby.

[Uncle Cracker]

Here's something that Yahoo ran on the front page today, from the CNN-Money website:

"An activity is considered a for-profit business if the gross income for any three of the most recent five years exceeds the deductions taken for the activity. If the IRS determines that a business is not engaged in for-profit, you won't be allowed to take deductions of more than the gross income from that activity.."

If your business does not meet this criterion, it's a hobby, they say. You must also keep meticulous and separate business records, or you risk the dis-allowance of any deductions for the business.

[herb fellows]

I believe the IRS says you have to make a profit three out of five years, or you're a hobby.

Unless the laws have changed recently, this is also what I was told, about 5 years ago.

I didn't see UC's post. That explains it thoroughly.

[cabinetman]

I am probably what you would call "semi-retired". I still practice law from my home, but not at the pace I used to. I am also doing a fair amount of pro bono work. LOML is still employed as a lawyer for the county.

I have long deducted part of my home expenses, for my home office and storage.

I want to keep practicing at this level, but I am afraid th INS will say it is a hobby, since I won't be showing a "profit".

Is there a solution to this dilemma? Do I need to be a "non-profit"?

TYIA

Steve

If you can get an agent on the phone within your lifetime, the IRS could likely answer that in 4 million words or less.

Since you say you are "semi-retired", and do a "fair amount" of pro bono work, does that mean some of your work is paid? In order to figure a profit or loss (Schedule C) (sole owner/business or profession), you list your income and expenses (allowable deductions). That tells whether there was a profit or loss.

If you have a loss, the IRS asks how is this loss recovered. It may matter how you and your wife file, i.e., married filing jointly. If you continually show a loss, the money has to come from somewhere to operate. In many cases it could be from the spouse's income.
.

[dbhost]

I believe the IRS says you have to make a profit three out of five years, or you're a hobby.

Does that mean GM and the Airlines are hobbies?

[woodturner]

Here's something that Yahoo ran on the front page today, from the CNN-Money website:

"An activity is considered a for-profit business if the gross income for any three of the most recent five years exceeds the deductions taken for the activity. If the IRS determines that a business is not engaged in for-profit, you won't be allowed to take deductions of more than the gross income from that activity.."

Please also note that there is no REQUIREMENT in the tax code preventing you from paying extra taxes or requiring one to claim all the deductions to which one is entitled. There is also no minimum definition of "profit", to my knowledge. So a business making $1 a year and not claiming all the deductions still meets the standard for a business, in my understanding.

[Uncle Cracker]

One other thing that was the gist of the article is that more and more aspects of the home-based business setup are now being used to trigger IRS audits... I have nothing to hide, but being part of an IRS witch hunt is nothing anybody wants.

[cgallery]

Does that mean GM and the Airlines are hobbies?

Ba-dum-bump.

LOL. That's AWESOME!

[cgallery]

One other thing that was the gist of the article is that more and more aspects of the home-based business setup are now being used to trigger IRS audits... I have nothing to hide, but being part of an IRS witch hunt is nothing anybody wants.

So just get a pilot's license. I hear they aren't going to audit pilots any more.

I'm sorry, was that too soon?

[cabinetman]

I heard the IRS has employment openings for instructions complicators.
.

[herb fellows]

Does that mean GM and the Airlines are hobbies?

ROTFL! So true, so true. My wife works for the airlines, has for 40 years, it is about the most unstable industry going.