For a taxpayer to be engaged in a trade or business, the activity must meet all of the following tests: it must produce a profit every year; must be continuous and regular activity; and must be the taxpayer's livelihood not their hobby.

Question

Quizplus · Accepted Answer

While producing a profit is certainly a factor in determining whether an activity is a trade or business, it is not the only factor. The IRS looks at a variety of factors when making this determination, such as the taxpayer's investment in the activity, their expertise in the field, and their intent to make a profit. Additionally, the fact that an activity is not a taxpayer's livelihood does not automatically disqualify it from being considered a trade or business.

For a Taxpayer to Be Engaged in a Trade or Business