A Review Of Hobby And Business Loss Rules: Evidence From Recent Developments

When we think of a hobby, we think of something that is engaged in for recreational or pleasure purposes such as painting, writing, coaching, golfing, horse farming, film producing, developing athletic abilities to win say an Olympic Metal, working on arts and crafts, creating music, opening a bed and breakfast or a country estate, to name a few. These recreational activities are expensive to pursue but may also have a money making aspect as well. On the other hand, strictly speaking a business is an economic activity engaged primarily to generate a profit. One can see where a hobby could be pursued for pleasure and profit. Also one could see where there could be a tax motivation to deduct the losses from a hobby operation by having it categorized as a business to offset other taxable income. So how to distinguish? Or rather, where is the line drawn in the sand that distinguishes between a hobby and a business is here explored as the lines may be blurred from the interpretation of the Internal Revenue Service and from Tax Court Case tried. Also, from the literature review, what is the unofficial interpretation that seems to emerge