Business Vs. Hobby

Forums: Taxes, Irs, Business
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Ok business people... question for ya.

A year ago, I was unhappy with my employment status and I started a business. I went through all the stuff to form an LLC. I have not actually done any business under this LLC though as my employment status changed to a new job that I am much happier with. So, I have been filing my quarterly sales tax to the IRS for $0, but as I have not had any profit or loss, at what time does my business revert from being a business and become a hobby?

I'd hate to think I wasted a bunch of money forming a LLC and all, but the IRS must have it's due...

Any suggestions would be helpful.

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@McGentrix,

You could deduct your costs against income, I think. Check with your accountant. There is nothing wrong with having a side business.

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@McGentrix,

I'm sure you meant you have been filing quarterly payroll tax reports, like 941 and annual 940 . No federal sales tax - yet.

But that's not your question. If you don't have a profit in at least three out of five years, it will be assumed to be a hobby, at which time you will not be able to deduct business losses against other income. Since you say you have had neither profit nor loss, I can't see it making a difference.

Oh, if you did have losses, it is possible to continue to be treated as a business, but it takes fairly convincing proof.

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Business Vs. Hobby

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