A Tax Question: How Long will the IRS Allow a Business to Lose $'s?

I started my photography business about 6 years ago. The plan was that this was going to be my stage two career as I give up my day job and ease my way into retirement. The business was quite successful; almost too much to handle while still working at my day job.

Fast foward and I got divorced so plans for retirement went out the window. To keep at my day job, I need to scale the photography business back to something more modest. I have dedicated space in my home for office and studio space. Given the size of my business going forward, by the time I account for various deductions including the home office, it will probably show a small loss indefinitely. But the deductions are legit.

So if the IRS wants to view my business as more of a hobby, what does that mean? I don't get deductions that are indeed legitmate? Do I no longer run it as a real business? How long will the IRS tolerate these losses?

Thanks.

Many businesses take a while before they turn profitable. Declaring legitimate businesses losses should never be a problem. In the worst case scenario you might be audited by IRS. If everything is in order you wont have any issues. The business earned income in the past, might earn in the future.

Sounds like you have two options because your "business" with indefinite losses is not a business. You have no plan to become profitable ever. You aren't building a reputation to gain more clients to improve profitability, you aren't seeking investments or a takeover for profitability, etc...

Option 1. Don't claim all the deductions to make sure you stay in the black.

Option 2. Close down your business and just do it as a hobby.

Ask an accountant, but generally, as I understand it, you need to show a profit in two of the past five years.

Here's an article:

https://turbotax.intui​t.com …-as-a-Hobby/INF22852.html

This question is covered by IRS Publication 535. The answer boils down to continuing loses over the years putting the operation in the category of a hobby. As Adam8080 suggests, you can scale back expenses to make a profit in some years and continue as a business.

Thanks for the insights, everyone!

Why would anyone continue a business if it doesn't make a profit? I have a client I picked up who has among other things, an amusement game business. On the 3rd year of preparing his taxes, he was still showing a loss. I went back and looked at the previous 3 years before I started doing his returns and he had a loss in those years too. The losses probably go back further than 6 yrs. So why would he continue a business that made a loss for 6+ years? Why didn't he throw in the towel after 2 or 3 years? I told him to stop showing a loss. Now he shows the income, but the expenses are limited to his income. In his case, he is reporting all the expenses, but not all the income (why else would he continue to operate?) If you aren't getting a 1099 and you have a loss, I'd just not report the business. If you report it, income goes on Sch C and expenses go on Sch A (so you can find yourself paying taxes even though you have a loss even if you do itemize-who said taxes were fair?). The IRS will allow continuing losses if you can prove you are attempting to make the business successful.

tomj wrote in post #16963658
Ask an accountant, but generally, as I understand it, you need to show a profit in two of the past five years.

Here's an article:

https://turbotax.intui​t.com …-as-a-Hobby/INF22852.html

that what my accountant said. 5 yrs worth of loss