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HOME-BASED BUSINESS

Can I Claim a Tax Deduction for a Part-Time Home-Based Business?
 

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For purposes of claiming a tax deduction it makes no difference if you work only part-time at your home-based business or that you have another occupation. But your business must be more than a disguised hobby--it has to pass muster with the IRS as a real business. The IRS defines a business as " any activity engaged in to make a profit." If a venture makes money--even a small amount--in three of five consecutive years, it is presumed to possess a profit motive. (IRC 183(d).) However, courts have held that some activities that failed to meet this three-out-of-five test still qualify as a business if they are run in a businesslike manner. When determining whether a nonprofitable venture qualifies for a deduction, courts may look at whether you kept thorough business records, had a separate business bank account, prepared advertising or other marketing materials and obtained any necessary licenses and permits (a business license from your city, for example).

Copyright 1999 Nolo.com Inc.

Last updated: Oct 21, 1999




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