Deducting Related Expenses on Your Tax Return

Taxpayers who are in business to make a profit can generally deduct related expenses on their tax returns. If the IRS doubts a profit motive exists, it may deem an activity to be a hobby with a limited ability to deduct costs. The burden to prove there’s a profit motive is on the taxpayer. In one case, the IRS found a “green” home construction partnership was a hobby. But the owners, a married couple and their daughter, showed they did operate in a businesslike fashion, consistent with a profit motive. They possessed industry expertise, spent substantial time on the activity and succeeded in entering new markets. The U.S. Tax Court upheld the for-profit business status. (TC Memo 2022-17) #irs #taxpayer #profit #business #entrepreneur