How many years can I lose money on my freelance business before I get into trouble?
Answered by Keeper Staff ·
If you claim business losses too many years in a row, the IRS could designate your business as a “hobby” for tax purposes. This basically means you aren’t allowed to take anymore write-offs or losses, and might be on the hook for back taxes.
The IRS describes a hobby as a money-generating activity that you aren’t trying to make a profit off of. Profit motivation is a key factor in determining whether something counts as a business or not. A good goal is to demonstrate profit 3 out of every 5 years, this is known as the "safe harbor rule."