Chapter 3, Problem 25P

Lew is a practicing CPA who decides to raise bonsai as a business. Lew engages in the activity and has the following revenue and expenses:

Sales       $ 5,000

Depreciation on greenhouse      10,000

Fertilizer, soil, pots      1,500

1. What are the factors that the IRS will consider when evaluating whether the activity is a business or a hobby?

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2. If the activity is deemed to be a regular business, what is the amount of Lew's loss from the activity?

$_____________

3. If the activity is deemed to be a hobby, what is the amount of Lew's expenses (if any) from the activity that may be deducted?

$_____________