Discussion:Too many years business loss
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Discussion Forum Index --> Tax Questions --> Too many years business loss
| 6 April 2007 | |
| My bee keeper client has had a 4 yr business loss and is worried about a 5th in a row. Is he in danger of becoming a hobby? Your opinion--Seedman 09:49, 6 April 2007 (CDT) | |
| April 6, 2007 | |
| That rule is merely a presumption of a hobby, not a hard and fast rule by any stretch. As long as he meets the other reasons for it being a business, he's a business. Is there a REASONABLE profit motive, even long term? Does he treat it like a business, keep records and such? Etc. | |
| 6 April 2007 | |
| Professional services such as book keeping would not considered be a hobby. What generated her losses? Salaries? Advertising? Operating?
IDK Book Keeping for a Hobby is the Worst Hobby I have ever seen... I rather raise cows lol. | |
| April 6, 2007 | |
| This time of year it does feel more like keeping bees in formation! Explains everything. And some sting, too! | |
Www.cpa1.biz (talk|edits) said: | 6 April 2007 |
| Bee Keeping/Book keeping. All the same stings...!!! | |
| 6 April 2007 | |
| Hold on folks! Haven't you heard about the great bee extinction going on? I'm serous, our bees are disappearing, flying in circles. This lady needs to clip some magazine articles on this, and go with the loss. | |
| 6 April 2007 | |
| Echoing Crow -- just tell the client to bring those bees to California to pollinate the almonds. It's a good business if you can just keep the bees alive. Apparently no one knows why they are dying off. | |
| 6 April 2007 | |
| saw an article that someone found beed on their deck, with apparent holes in them - as if drilled right through - eeek
document, document, document - including time spent keeping the bees. I have a client whose farm was reclassified to a hobby in the 80's (before he came to me in the 90's) Guess the IRS thought those herd of cattle were pets! Seriously, he had another job & didn't in the IRS's mind meet the time spent requirement. I would have suggested having the meeting in the barn next to a big pile (or better yet track some to the IRS office on his work boots!) had I been his accountant at the time - it was ridiculous & he thought he could handle the audit himself because it was so obvious. He'll never do that again. | |
| 6 April 2007 | |
| I have a client that has had losses since starting his S Corp in 2002. He has a profit motive in that he would like to make money at it, but he doesn't seem to do what it takes to make money. He's a horrible money manager and a worse bookkeeper. His books are a mess. He's got a corporate CC that he uses as overdraft protection on his company checking acct, but then pays the CC bill out of the account, which is already overdrawn!
I think he's at risk for an audit. I also think he should quit or find a partner that can straighten him out. What should I tell him as his tax preparer? Is it my responsibility to tell him it's time to cut bait? | |
| 6 April 2007 | |
| BTW, as far as the bees, I agree with the bee issue possibly being a good reason for the losses.
However, do you have a hunch at why he's got these losses (poor management, flawed business plan, embezzling, etc.)? If he's got his act together, and he's just losing a lot of bees, that's one thing. But if he's screwing up somewhere else, that's a whole different story. | |
| 6 April 2007 | |
| Be careful with the losses if your client has another full time job. I had a client who raised dogs, kept great records, did everything right, and still lost in an audit. She had really bad luck with a few of the dogs getting sick and not being able to compete. She had a full time job in a totally different profession. | |
Bottom Line (talk|edits) said: | 6 April 2007 |
| Ouch. Apparently part of the bee problem is pesticides and loss of habitat (pollenating plants). This can really be a problem since plants must be pollenated in order to grow. They pay bee keepers to put hives next to orange groves and blueberry farms. Blueberry honey is great (husband uses that in his homemade granola). Of course Tupelo honey is my favorite. Buckeye honey is good too. | |
| 7 April 2007 | |
| You might want to know to what extent he is in a cash business. My preference is buckwheat. | |
| 7 April 2007 | |
| ...let's just blame it on global warming...seems to work for everything else. | |
| 7 April 2007 | |
| This thread is hilarious. Or maybe I've just lost it. Wwtaxes, I just survived a hobby loss audit. Document time spent at the activity, time learning how to do the activity well, expertise developed or those hired w/ the expertise, what changes from year to year to generate a profit as yet another year passes by with losses. Run the business like a business - insurance, website, accurate books and records. Take the auditor on a tour of the facility so that he can see that it is real. All that hobby loss stuff that is discussed over and over in various cases. | |
| 7 April 2007 | |
| Oh and I forgot...if you can get the client to sit down and do a real business plan about his profit goals and how he is going to achieve them, that will be a big help in case of a challenge. I had asked my client to do that, he didn't, and the auditor did ask for it. Lack of the business plan wasn't fatal for us, but it certainly would have helped. | |
| 7 April 2007 | |
| I believe there is a safe harbor if a business shows a profit 2 year of
the past 5. Otherwise, you need to be ready to defend why it is not a hobby. | |
