Taking a loss on any business hurts, no question—but at least you get that immediate tax deduction, right? Not necessarily.
And the “not necessarily” is more true when you incur that business loss on your second or third business.
Here’s the culprit: When you operate a business, you have to materially participate to deduct the losses. As you create more businesses, you can, and often do, reduce your chances of passing the material participation tests.
The material participation tests generally require that you spend a certain number of hours working in the business. Your primary business likely takes most of your time, meaning you have less or perhaps little time to devote to the second or third business.
This article gives you several tactics that help you avoid the mistakes that can cost you loss deductions for your second and third businesses. ... Log in to view full article.