How long should a business be prepared financially to survive if they do not make a profit?13 months ago - 2 answers
"4 years. After 4 years, if you haven;t made a profit, the IRS considers it a hobby and you cannot write anything off."
Actually, there is no hard and fast rule regarding the length of time. As long as a business can show that it is, indeed, trying to make a profit it is considered a going business concern. "Going" nowhere maybe, but still a business.
The hobby rules pertain more to part-time, "side businesses". If I work the business when I feel like it or "when I have time", then the IRs will assess my business as a hobby. But if I am working the business daily and managing to scrape by, even with little or no net profit, then I'm still a business.
Also, depending on the structure, a business could conceivably have no "profit" and yet you manage to earn $50, $60 even $100K from it. Corporations require the officer to take a salary commensurate with others in the industry. That salary is an expense to the company and will reduce it's net profit.
4 years. After 4 years, if you haven;t made a profit, the IRS considers it a hobby and you cannot write anything off.by Henry - 13 months ago