The following is a useful checklist for any
business endeavor. Follow this list carefully to avoid a hobby
classification by the IRS.
1. Try to have a profit 3 out of 5
consecutive years (2 out of 7 for some activities).
2. Thoroughly investigate the profitability
of your activity before entering into it.
3. Don't ever make a statement to the effect
that you are "in this for the tax savings."
4. Keep accurate books and records.
5. Keep a separate bank account for your
business.
6. Keep a good tax diary.
7. Develop a ten year business plan of
expected income and expenses.
8. Treat your activity as a profitable
business (advertise, get business cards and stationery, get a business
telephone listing, use promotional literature and consult with experts).
9. Get as much training as possible.
10. Document in your diary you spend at least
one hour a day 4 or 5 days a week working your business and meeting with
prospects.
11. Document any steps taken over the years
to reduce business losses.
12. Be especially careful if you participate
in an "inherently suspicious activity."
