Tuesday, February 21, 2012

Material Participation under Passive Activity Rules

Passive losses may be deducted against passive income, but generally may not be deducted against other income, such as wages, portfolio income, or business income.  Active losses may be deducted against income from any source.  A passive activity is any activity in which the owner does not materially participate.  So materially participating in an activity can be very important for tax purposes.
An owner materially participates in an activity if the owner participate sin the activity's operations on a regular, continuous and substantial basis.  Substantial participation includes an owner working more than 500 per year in the activity, or if the owner is the sole worker in the activity, or if the owner works more than 100 hours a year and that is more than any other worker (including non-owners), or the owner materially participates for at least 5 of the last 10 years.  Substantial participation may be met in some other way, and the owner may otherwise meets a facts and circumstances test.  

Give me a call if you want to know more about the passive activity rules.  Jsenney@pselaw.com or 937-223-1130.

AND ONE MORE THING.  Don’t forget to have your owners and employees and independent contractors sign non-compete, non-solicitation and non-disclosure agreements.  Give me a call if you want us to help you draft an agreement.  Jsenney@pselaw.com or 937-223-1130.

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Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

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