THE IRS DECIDES ON A CASE BY CASE BASIS

The IRS has officially recognized that with the advent of the computer revolution, many entrepreneurs are establishing businesses in their home. Like all businesses, they are eligible for many tax deductions. The IRS, however, has expressed concern that some entrepreneurs are too aggressive in interpreting the IRS regulations, and open themselves to penalties and fines.

One standard measure that the IRS checks for in determining the business owner's eligibility for tax deductions, is the answer to the question, "Has the business shown intent to make a profit?"

If your paper trail of business activities shows that indeed, you are trying to make a profit, this will add a positive light to your case in any IRS Q&A session.

Here are two examples of cases in which intent played a significant role.

Example 1: Maurice Dreicer wrote a book about the "perfect steak." To "keep his research up to date," claimed Maurice, he had to travel about the world over a period of some 20 years. The bon vivant's itinerary included four visits to London and another four to Paris.

Though the manuscript for his book was completed, he made only two efforts, both of which were unsuccessful, to get it published.The total expenses from his activities as a "writer" during a twenty-year period totaled $274,375, while his income from writing was only $15,766. (He had substantial amounts of income from a family trust.) With that scenario, the Tax Court held that Maurice lacked the requisite intent to make a profit from his book project.

Example 2: The Tax Court allowed losses sustained by Thomas Jackson, a sailing enthusiast who let his yacht out for charter, despite the contention by the IRS that the enterprise was actually a hobby because Thomas enjoyed sailing. Anyone who faces a similar attack should find reassurance in the court's response: "A 'business' will not be turned into a 'hobby' merely because the owner finds it pleasurable; suffering has never been made a prerequisite to deductibility."

Help from the IRS

For more information, consult IRS Publication 535, Business Expenses. For a free copy, call 1-800-TAX-FORM (allow at least 10 workdays for mailing), or, to obtain one immediately, stop by any IRS office serving area. Many libraries also have copies of this and the IRS tax guides. IRS Publication 910, Guide to Free Tax Services, provides a complete list of booklets and explains what each one covers.

Ed. note: For a list of standard tax deductions that the part-time stock photographer may be eligible to take, read Chapt. 16, pages 310-313, of Sell & ReSell Your Photos, 4th edition.