If you're like some taxpayers, you have a pastime that brings in cash but produces a loss after you deduct your expenses.
Example: an amateur boutique owner or stylist,  who spends money for inventory and supplies and only occasionally sells a product or service.  
If you could deduct "hobby" losses on your tax return, you could reduce taxes owed on your salary or other income.
Actually, you can deduct your losses, but only if you establish that you are carrying on your pastime with the motive of making a profit.
If you can't prove you have a profit motive, the IRS views your activity as a hobby, not as a business. Expenses of a hobby can be deducted only up to the amount of income from the hobby. You can't deduct hobby losses from your salary or other income.
You can help establish your profit motive in one of two ways. If you show a profit in three out of five years (two out of seven years for horse activities), the IRS will presume you've got a business and not a hobby. However, you can't simply manipulate deductions and income to create profit years.
The other way to demonstrate that you're operating with a profit motive is to conduct your activity in a business-like manner. Get advice from an accountant to assist with keeping accurate books and records. Maintain a separate checking account, advertise your services or products, and get a business phone listing. If you have losses, try to turn your business around by taking classes, consulting with experts, and changing your methods of operation. Be sure you spend enough time at your activity to demonstrate that you're serious about profits. Remember, you don't have to earn a profit, but you must try to do so. If you don't have profits in three out of five years, the burden of proof will be on you to show the IRS that this activity is a business and not a hobby.
If you want to turn your hobby into a business, contact us! We can assist you with the IRS requirements.

Search Topic: Hobby or Business

Take time to investigate the business thoroughly.
Don't be too eager. Many people feel they should get into the business and then worry about the problems as they develop. An investigation of all the problem areas may indicate that you shouldn't buy that particular business in the first place.
Make sure that the price is not too high. Many small businesses are not profitable enough to give an acceptable return on both the buyer's time and money. If the buyer wants $90,000 per year for working 60 to 70 hours per week and wants a 12 percent return on his $100,000 investment, the business must net $102,000. Analyze the past performance of the business you're thinking of buying to be sure it can satisfy your requirements.
If you are willing to take a reduced return on your time and money for the sake of self-employment, do so with your eyes open - know the facts.
Ask questions. Most buyers don't ask enough questions or require enough financial history to make an informed decision. Any business worth buying should have kept adequate records. The inability or the unwillingness to provide the proper financial information is an indication that the business may be overpriced.
The need for professional assistance when buying a business cannot be overemphasized.
Search Topic: Buying A Business

Planning to start a business partnership with a friend? Prudence demands looking at the pitfalls - as well as the potential strengths - of such relationships. Here are a few questions to consider.

• What will my friend contribute to the business? Does he or she have strengths that will clearly enhance the business - abilities, knowledge, or resources that you don't possess or aren't willing to acquire by other means? Say, for example, you're a crackerjack salesman, but not too good with numbers. If your friend loves details and is clever with records, the partnership may make sense. If, on the other hand, your pal really can't offer something that would round out the business or make it more profitable, you might want to consider partnering with someone else.
• Are you willing to lose the friendship? This is a tough question, but one that's critical to consider. After all, you and your friend will be working together, day in and day out, to make the business succeed. Such relationships can bring out the best - and worst - in people. If maintaining your friendship is one of your highest priorities, partnering with someone else may be a better choice.
• What's expected from each partner? Developing a profitable business is hard and often unrewarding work. You and any potential business partner should honestly discuss expected work hours, contributions, and responsibilities. Resentment can creep into any business relationship when partners feel that workloads and rewards aren't fairly distributed.
• Can you communicate effectively? Like a good marriage, a long-term business partnership takes honest communication to succeed. Ask yourself, for example, whether you can handle constructive criticism from your friend/business partner. Even the closest business partners don't always see eye to eye, so it's important to take an honest look at how you both handle disagreements. Will you work through difficulties for the firm's sake, or bury your head in the sand and hope for the best? Answering this question is crucial to the success of your partnership.

Friends can be great business partners, but it's wise to proceed with caution.
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Search Topic: Partnership Decisions

Here's what the banker needs ... 
When you apply for a business loan, your request must meet certain basic requirements.
Your banker needs to have:

• A written request for a specific amount of money.
• A detailed explanation of the use of the funds.
• A projection of how and when you will repay the loan.
• A list of the collateral you are offering as security for the loan.

In addition to these essentials, the banker will want to know what will happen in the event of your disability or death; that is, do you carry disability, life, and general liability insurance?
The banker also wants to know:

• The financial history of your company in the form of company balance sheets and profit and loss statements for at least the past three years.
• A realistic projection of profits and a twelve-month (month-by-month) cash flow projection. This spreadsheet should show the specific month that cash will be received from various sources and the month that specific disbursements need to be made.
• A narrative relating your personal business experience.
• The company "game plan" telling where the company will be several years hence in terms of size, types of products or services, number of employees, locations, etc., to give the banker some insight into your long-range planning.
• Personal tax returns for each major owner of the business for the past three years.

Put yourself in the banker's shoes and see what questions you would want answered if someone asked you to risk your capital. If you have not previously assembled a loan request in this manner, engage professional assistance.