> The same applies in the US. You cannot deduct losses from hobbies
(legally, anyway). An enterprise that loses money year after year and
still keeps at it is obviously a hobby. If people are getting away with
deducting hobby losses, it is because nobody has turned them in to the
IRS yet.
That's not entirely true. 3 years is a rule of thumb and is not the
IRS definition. They presume it is a business (vs hobby) if it makes a
profit in at least 3 of the past 5 years (which is where I assume the 3
year rule you often hear quoted is derived from). However, failing that
you can still be ruled as a business. The real test is much more
complicated and arbitrary. It depends on the answers to questions that
determine if the intention is to make a profit, is profit reasonably
expected in the future, do you have the knowledge to run a successful
business, etc.
There are also a few expenses you can deduct from a hobby (though it is
extremely limited)
See
http://www.irs.gov/uac/Business-or-Hobby%3F-Answer-Has-Implications-for-Deductions
for more information.
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