Tax Law (Questions About Taxes)/Unprofitable LLC

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Question
A couple of years ago I formed a single member LLC, mostly for liability protection.  I understand that I should file Schedule C and have been doing so for two years.  I also understand that the IRS expects a business to be profitable for three out of any five years.  If a business is not profitable it may be considered a hobby with expenses recorded on Schedule A.

My LLC has not been profitable as of yet and may be years away from profitability.  What is the best course of action?  Can I report expenses on Schedule A rather than Schedule C?  Continuing to file on Schedule C, can I or should I limit expenses to the income from the business as I would otherwise do on Schedule A?  Or do I have to dissolve the LLC, losing the liability protection?

If the IRS subsequently determines that my LLC is really a hobby, will I be liable for back taxes for the unprofitable years?

Answer
First.   Expenses never wind up in sch a

Second. IRS hobby loss rules offer a _presumption_ of profit aseeking 3/5. Years. But it is easily rebuttable.  Think of a company trying to cure cancer.   They might not make Money for ten years.   But they are still trying to make money.   So deductions continue

LOTs of other stuff in play on hobby front

What does business do.

Is there an element of pleasure ?  Do you grow African violets or clean toilets.

See the difference?   Loser toilet cleaner more likely to win hobby loss argument over a dog showing Lama raising violet grower



You don't have to dissolve.    All Irc 195 limits is the ability to take loss

You can dig a hole to zero.  But not go below ground level (you can offset any income but not generate a loss)


Ultimately more info needed  

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Tax and general business including hospitality related (hotel mgmt degree and experience in industry prior to obtaining ms tax and cpa).

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19 years cpa. ms tax. NOTE: My discussions are only a general information and do not constitute tax advise without entering into a specific agreement and executing an engagement letter; This free chat is nothing more than general information and should not be construed as tax advice nor does my response or replies imply an agreement to provide client specific advice or other guidance for purposes of avoiding IRS tax or penalties and should not be relied upon without your own validation and confirmation of the how the discussion may fit your facts... Not having all the facts and/or not having a direct client relationship prevents me from providing the most accurate replies as possible and I highly suggest using a local CPA to provide you with written advice and guidance. Taking matters into your own hands is much akin to trying to land an airplane without a license. It is easy to FLY a plane, but LANDING is when critical experience is key. In short, caveat emptor; do your homework and don't just rely on free chat board advice anywhere, anytime.

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