“If one takes seriously the promise that the coming uptick in IRS will fall on those with incomes over $400,000, we might see an increase in hobby loss/ Section 183 cases. When wealthy taxpayers try their hand at boat chartering in the Caribbean, dressage, running a vineyard, or writing a travel guide premised on finding the best sushi in Japan, and the activities generate losses that the taxpayer would like to use to offset other income, the IRS may carefully scrutinize the taxpayer’s profit intent.” – tax professor Leslie Book in a blog post last week. “The promise” the professor refers to is last year’s much publicized announcement of enforcement priorities by the U.S. Treasury Secretary in a letter to the IRS.

IRS recently revised its audit techniques for hobby loss cases. It would be naïve to think they don’t plan to apply them. In my practice that focuses on middle class small business owner clients, I see a lot of taxpayers with less than $400,000 income that would seem to have significant risk exposure to hobby loss tax violations. Working class clients challenged in audit would have much less ability to challenge the assessment or ‘bounce back’ from this type of unexpected significant tax assessment. 

If you advise small business operators with operating losses on financial matters, the 50+/- page audit procedure manual is worth reading. I sense that there is much misunderstanding of this topic within the tax community. An even larger concern is that I do not see enough emphasis on risk management, sustainability planning, and overall life coaching when financial losses mount for small business owners. https://www.irs.gov/pub/irs-pdf/p5558.pdf

#financialplanning #coaching #smallbusiness