What is a hobby loss?

The loss of hobby is a financial loss that cannot be claimed as a deduction of business tax, because it is the result of an activity that was not aimed at gaining profit. The exact definition of "hobby loss" varies according to jurisdiction. Although this term is most commonly used in the United States, other countries may also have tax policies that limit the ability to require deductions from expenditure on efforts that are not real businesses. The Hobby loss rule helps to prevent tax fraud by prohibiting deductions of taxes for expenses that are not really related to the operation of profitable business. If the activity of an individual is not considered to be an activities necessary for the operation of a legitimate business, the project can be classified by a tax agency as a hobby and hobbies related to tax codes are often seriously limited. For example, in the United States, the cost of hobby can only be taken as an itemized deduction.

In the United States and other countries, individuals who operate businesses can deduct the NáklaDY to operate business from their gross income. These expenses, such as travel, entertainment and the cost of maintaining an office or other device, can be considerable. As a result, the company owner can be able to seriously limit his tax liability by deducting these costs. Government tax agencies, such as the Internal Revenue Service (IRS), are aware of how these restrictions can reduce tax revenues and thus have created hobbies that define the nature of legitimate business activities for tax purposes.

In situations where the company owner requires various expenses and losses such as tax deductions, the agency may investigate or audit the taxpayer's claims and apply the rules for losing hobbies to ensure that the deductions are legitimate. In the United States, the tax tester will explore the details of the About Enterprise and its owner to determine whether the company is a real enterprise or a hobby for its owners. Reflections include whether the owner relies on business income and ZDAnd some losses were the result of unplanned events or arose in the early stages of business. The investigator may also examine financial records of business that have been covering the last few years. In situations where the enterprise has made profits in the years before the current audit, the investigator may be more likely to consider business deductions legitimate.