Enrolled Agent Exam [Part 2] 04, Hobby vs Business — Activity for Profit Test

About this episode

This episode discusses the IRS criteria for distinguishing between a hobby and a business, focusing on the profit motive and related tax implications.

This podcast is made by Ran Chen, who holds an EA license, Insurance and Securities licenses (Series 6, 63, 65), and the CFP® designation. He is passionate about opening access to high-quality exam preparation resources and helping learners prepare more effectively for professional certification exams. In this episode you will learn: - The IRS uses a nine-factor test under §183 to determine if an activity is a business or a hobby. - An activity is presumed to be for-profit if it shows a profit in at least 3 of the last 5 consecutive years. - The profit motive presumption for horse-related activities is 2 profitable years out of the last 7 years. - Hobby income is reported on Schedule 1, but related expenses are non-deductible for individuals through 2025 due to TCJA. - Meeting the profit presumption shifts the burden of proof to the IRS but does not guarantee business classification. For more free exam prep tools, practice questions, and AI-powered explanations, visit https://open-exam-prep.com/ or YouTube Channel: https://www.youtube.com/@Open-exam-prep

People in this episode

Host: Ran Chen

Topics covered

• Enrolled Agent Exam
• Hobby vs Business
• Activity for Profit Test
• IRS nine-factor test
• Profit motive presumption
• Tax implications of hobby income

Keywords

• Enrolled Agent Exam
• IRS
• hobby vs business
• profit motive
• Schedule 1
• TCJA
• tax implications
• nine-factor test

Mentioned in this episode

Organizations: IRS, TCJA

Books & works: Schedule 1

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