

Entrepreneurs Win Tax Case Versus IRS - gamerates
http://online.wsj.com/article/SB124698320557906557.html

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mr_luc
I can't believe it wasn't possible to do this all along!

I mean, what the hell.

Are you telling me that if I earn $50k at one job, but lose $25k with my LLC,
the IRS __wanted __to tax me on the full $50k? Was, up until this ruling?

What the hell?

Generally speaking, the US is a good place for business. I know that. But I
look at stuff like this, and then the self-employment tax on top of income
tax, and I go: what?

Don't rules like that only punish good, honest people anyway?

I like how, at the end of the article, they mention that lots of people get
out of the self-employment tax by showing their partner status in an LLC.
WHAT? Is that legal? What does that even mean?!?

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asmithmd1
How about this example: I earn $500k in my job as VP HR at MegaCorp. I also
own 50% stake (my wife owns other 50%) in : Lake Front Home rental LLC, Sail
boat charter LLC, and Thoroughbred Riding LLC. All of those "businesses" my
wife operates and have a tiny amount of sales but lose money hand over fist.
Now do you think LLC losses should be able to offset regular income?

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eru
In Germany we have a special clause in the tax code to prevent your examples
(see <http://de.wikipedia.org/wiki/Gewinnerzielungsabsicht>). If your business
loses money for a long time, you have to justify that you are in the business
to make money, not as a hobby ("Liebhaberei").

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kirse
_you have to justify that you are in the business to make money, not as a
hobby ("Liebhaberei")._

The IRS operates the same way here, otherwise everyone would be starting up
"businesses" for their various hobbies and deducting as much as possible. The
Nolo book "Home Business Tax Deductions" is a great primer on all the specific
steps one needs to take to ensure their business does not get classified as a
hobby by the IRS.

Ultimately if you really have the genuine intent of running a business, you're
going to have plenty of evidence to indicate that. But for those curious, I
read/own this book and it was very helpful:
[http://www.nolo.com/product.cfm/ObjectID/0EB8204C-4889-4C7B-...](http://www.nolo.com/product.cfm/ObjectID/0EB8204C-4889-4C7B-B44E88BC75A06BB3/111/277/)

This is usually not a concern for most startups, but for people who might be
trying to turn their passion/hobby into a money-maker this is a useful guide
to ensure you don't get burnt.

