Hobby vs. Business and At-Risk Limitations

Study Level:  Intermediate
Delivery Method: Self-study online 
Provider of Record: APlusCPE, a service of WebCE
Field of Study: Taxes
Number of CE Hours:  4

Prerequisites or Advanced Preparation: Students taking this course should be  familiar with: 

  • Common operating methods and practices for small businesses
  • Form 1040 and its associated Schedules A and C

Course Description:

Many taxpayers receive income from other sources in addition to  their wage and salary earnings. In order to correctly report the related income  and expenses, it must first be determined whether an activity is engaged in for  profit, such as a business or investment activity, or is engaged in as a hobby.

This video-based course presents a comprehensive overview of  Internal Revenue Code Section 183 (Activities Not Engaged in for Profit) which  limits deductions that can be claimed when an activity is not engaged in for  profit. IRC 183 is sometimes referred to as the “hobby loss rule.” The nine  factors from IRC 183 that are used to determine whether an activity is more  correctly described as a hobby or a business are reviewed in turn, supported by  examples from the author’s tax practice and relevant Tax Court cases. The Passive  Activity and At-Risk rules are discussed together with the appropriate  reporting methods.

The course features Robert Cross, PA, ABA, ATA who has some 30  years of experience in preparing taxes for businesses of different types, and  is Past President of the National Society of Accountants (NSA).

Topics presented include:

  • Laws, Regulations & Reporting
  • Ethics & Preparer Responsibilities
  • The Nine Factors in IRC Section 183
  • Passive and At-Risk Issues

Learning Objectives:
After completing this course, students will be able to:

  • identify the factors used by the IRS to determine whether a given activity is engaged in by the taxpayer for profit or as a hobby
  • identify the tax treatment of hobby activities and recognize the general limit on deductions of expenses from hobby activity income
  • identify the three categories of deductions for hobby activities, the limitations of each of them, and the order in which they should be claimed
  • recognize how Passive Activity and At-Risk rules limit the amount of deductible loss for a given business or other income-producing activity
  • identify the correct report methods for income and expenses for hobby activities as well as for passive activity