American businesses sometimes lose money. Those losses actually create a tax shelter for other income. While the tax code explicitly provides this incentive for businesses – to encourage investment for growth, and to allow for unpredictable events – losses that go on for too long tend to draw scrutiny from the IRS.
If your arts practice loses money for more than a couple years, they may question the legitimacy of the business – specifically, the profit motive. Typically, they reclassify such a business as a hobby, and disallow the artist from expensing deductions past the point of their income from the activity. That’s bad news for any artist, but it was a near nightmare scenario for artist Susan Crile. Read the full article on the blog now.
