Hobby v. Business Loss – Ramifications Of The Herb Vest, TC Memo 2016-187

The rules for reporting the income and expenses associated with a “hobby” or “pastime” is dependent upon whether or not the activity has the genuine purpose of making a profit. The Herb Vest case is an interesting Tax Court Memorandum decision regarding a wealthy taxpayer’s attempt to deduct from gross income, expenses related to the investigation of his father’s mysterious death. Among several issues discussed in the case, the Tax Court discussed not-for-profit activities and the factors considered in determining profit objective.

The (Trump’s) Net Operating Loss (NOL), Explained

At the beginning of October, the New York Times released pages from Donald Trump’s Connecticut, New Jersey and New York 1995 tax returns, apparently reflecting that the Donald declared “other income” of negative $916 million and was prepared to forego any federal income tax liability for up to 18 years by carrying forward this “net operating loss” (NOL). So what is a net operating loss?

Tax Treatment of Income from Hobbies

Countless Americans take pleasure from hobbies that also generate income. Collectibles of all types have skyrocketed in popularity, as well as income potential, in the last fifty years. Whether its dolls, baseball cards, stamps, coins, or Star Trek action figures, all types of hobbies have the potential to generate some amount of income, which, of course, is taxed by Uncle Sam.

The rules for reporting the income and expenses associated with a “hobby” depends upon whether or not the activity in question is a hobby or business. There are deductions that hobbyists may claim but they, like most everything, are subject to special rules and limits imposed by the Tax Code.

Losses, Expenses and Interest between Related Taxpayers – Know The (Tax) Code: 26 U.S.C. §267

Congress, aware that related parties could create fictitious tax losses lacking economic substance based upon the related parties continued enjoyment of the property subject to the loss, enacted § 267 of the Internal Revenue Code to disallow certain losses and deductions on transactions between related taxpayers.