Taxpayers who are in business to make a profit can usually deduct related expenses on their tax returns. If the IRS doubts a profit motive exists, the activity may be deemed a hobby, limiting the ability to deduct costs. The burden to prove there’s a profit motive is on the taxpayer. In one case, a husband and wife operated many auto dealerships and a cattle ranch. The couple spent little time at the ranch and had other significant income. However, they hired an experienced foreman to oversee the ranch, used a reliable accounting system and diligently sought to improve profitability. The U.S. Tax Court found that their ranching activity did have a profit motive. (TC Memo 2023-5)
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