 | Woodworking business and the IRS |
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| I've just started a part-time woodworking business this past year in
part to write-off the costs of building a barn workshop. I don't plan
to be all that active in the business at first, but expect to pick the
business up when I retire in about 10 years. I don't intend to make a
fortune at this and I don't expect to make a profit the first few
years. The IRS has certain rules in what constitutes a business versus a
hobby. You must have an active plan to make a profit and always be in
the process of marketing yourself. Has anyone had a similar
experience with the IRS, good or bad. I don't want any suprises down
the road when my significant deduction is denied due to a hobby
designation.
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Many people form businesses to avoid paying sales taxes and to be able to
write off expenses. IIRC you do have to start showing a profit within a few
years of forming the business. Naturally if you are making a profit you can
remain in business. If you continue to loose money and remain open that
sends a red flag. They ask, how can he remain in business and loose money
every year. Remember the saying, Pigs get fat and Hogs go to slaughter.
Check with a CPA to be safe.
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