Taxpayers who are in business to make a profit can generally deduct related expenses on their tax returns. If the IRS doubts a genuine profit motive exists, the activity may be deemed a hobby, limiting the ability to deduct costs. In one case, partners operated a farm that bought, sold, bred and raced Standardbred horses. It didn’t qualify as an activity engaged in for profit, according to a U.S. Appeals Court. Factors included that the partnership had a substantial loss history and paid for personal expenses. Also, the taxpayers kept inaccurate records, had no business plan, had significant income from other sources and derived personal pleasure from the activity. (Skolnick, CA 3, 3/8/23)
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