When can I deduct expenses for a side business on my tax return?

July 18, 2008

I recently bred my two Norwich terriers and sold the puppies. It was so much fun that I may start breeding dogs as a side business. What must I do to be able to deduct the related costs on my tax return?

I recently bred my two Norwich terriers and sold the puppies. It was so much fun that I may start breeding dogs as a side business. What must I do to be able to deduct the related costs on my tax return?

You'll have to show that you're serious about making a profit. That could prove tricky, since you won't be dependent on your income from breeding dogs and presumably you haven't made money at it (or a similar activity) before. Be sure you can prove that you put considerable time and effort into your breeding business. Take demonstrable steps to learn how to run this type of business and consult advisers who know how to do it successfully and profitably. If you lose money initially, making changes to try to improve your results can help support your profit motive. If the IRS decides that your venture is a hobby rather than a business, you may still be able to deduct some expenses, but you must do so in a certain order and the total can't exceed your income from the activity. For further details, see IRS Publication 535, available at http://www.irs.gov/.