Profit or Loss From Business

[lbarthell]

If you have a loss is there a number of years you can file a loss on your taxes.
EX. 3yrs.

[Snaggletooth]

Three Years

Generally, three years. In fact, I believe three years even if there is a profit.

[Jiggers]

You can always have a loss. You just have to prove that you have a profit motive if audited.

The loss can be due to Sec 179 or bonus depreciation (this does catch up with you), change in the economy (oil price dropped to $30), a bad bull that didn't produce (I used that on a client), etc.

[Lion]

If you're looking for the Safe Harbor, that's profits in three out of the last five years to be presumed a business. Otherwise, you prove you're a business based on the Nine Points. The Tax Book is a good starting point to research. Do look up the Court Cases, too.

[Nashville]

Cannot create a loss

The loss can be due to Sec 179

I'll have to take issue with that one, Jiggers. If s. 179 is elected, the deduction is limited to the "otherwise" profits, such that a loss is not created. If any s.179 is left over as a result of this limit, it is rolled forward to the next year.

Yes, a bull that doesn't work can create a loss.

None of the above may be relevant to the OP --I think the OP was concerned with the statute of limitations.

[Jiggers]

Sec 179 deduction can create a loss for a business when there is other income such as W-2 income being reported on the return.

See the TaxBook, page 9-8, chart: Section 179 Business Income Limitation.

[New York Enrolled Agent]

If you're looking for the Safe Harbor, that's profits in three out of the last five years to be presumed a business. Otherwise, you prove you're a business based on the Nine Points. The Tax Book is a good starting point to research. Do look up the Court Cases, too.

I need to disagree a bit here. There is no "safe harbor" when it comes to a determination of a hobby v. a business (actually more accurately described as an activity not engaged in for profit v. an activity engaged in for profit as per §183).

If the activity has a profit in 3 of the last 5 years, there is a presumption that the taxpayer is engaged in an activity for profit unless the Secretary (i.e. the IRS) establishes to the contrary. I think Lion and I agree on the same concept but a safe harbor suggests the IRS will not challenge an activity in this situation.

How about an activity that shows $3 profit year 1, loss $10,000 year 2, $5 profit year 3, loss $15,000 year 4, $8 profit year 5. I guarantee you - no safe harbor here.