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