April 1, 2009 4:17 AM EDT
Greetings everyone. I`m hoping someone can confirm or debunk what my tax guy is telling me. My wife has a home based embroidery business and we have been claiming it on our personal income taxes for the past four years. My tax guy informed me that the IRS requires that a home based business MUST show a profit two out of every five years, or it`s considered a hobby and therefore cannot be used as a deduction. My question: Is this true or not? I ask this primarily because a friend of mine also has a home based business which he says he has been claiming losses just about every year since he began it seven years ago. The business is his primary source of income, while my wife`s is more like a second job at this point. Also, I don`t know his corporate status, whether he`s an LLC or what. We are strictly a mom and pop type operation right now. If you know of a particular IRS reg, that would help me immensely.
Thanks for the help on this.
sewladyshelper4/1/2009 10:15 AM