Can I use my new business losses to offset short term stock trading gains this year?

Thanks for the detailed response! I definitely plan on making this a real business, not just a tax strategy. It's IT consulting which is actually my background. How many years of losses would typically trigger the "hobby loss" scrutiny? And does documentation like a business plan help prove it's a legitimate business?

The IRS doesn't have a specific number of years that automatically triggers hobby loss scrutiny, but there's a presumption that an activity is profit-motivated if it shows a profit in at least 3 of the last 5 tax years. For activities involving horses, it's 2 of the last 7 years. Yes, documentation absolutely helps. A formal business plan, business bank account, proper bookkeeping, marketing materials, and evidence of your efforts to make the business successful would all support treating it as a legitimate business. Keep detailed records of all business activities, client communications, and especially any strategic changes you make to improve profitability when things aren't working as planned.

Did you have any issues with the system understanding complicated business expense categories? I tried another tax service and it kept misclassifying my expenses which was a nightmare.

I'm interested but skeptical... How is this different from TurboTax or other tax software? Does it actually give advice or just fill out forms?

The system handled my complex business expenses really well. I had a mix of direct consulting costs, home office expenses, and partial business use items, and it correctly categorized everything. It even flagged when I was about to miscategorize something that should have been depreciated instead of expensed. It's completely different from TurboTax. TurboTax just asks generic questions and fills out forms based on your answers. This actually analyzes your documents and provides specific advice for your situation. It pointed out that some of my trading activity might appear too frequent to the IRS and suggested documentation to maintain in case of questions, plus it recommended specific record-keeping approaches for my new business.

How does this actually work? Does it just auto-dial the IRS for you or something? I've spent hours on hold and eventually just gave up trying to get answers.

This sounds like complete bs honestly. Nothing can get you through to the IRS faster. They're understaffed and overworked. If this actually worked everyone would be using it and the "secret trick" would stop working.

It uses a combination of automated systems to navigate the IRS phone tree and hold on your behalf. When an agent actually picks up, you get an immediate call connecting you to them. It's not just auto-dialing - it's smarter than that. No, it's definitely real. The reason it works is that most people don't know about it, and it's using technology to work within the existing IRS phone system. The IRS is absolutely understaffed, which is precisely why this service is valuable - it waits on hold so you don't have to. I was skeptical too until I tried it and was connected to an agent in minutes after spending weeks trying on my own.

That's a good point I hadn't considered. My plan is to work on this consulting business about 20 hours a week, so around 1000 hours/year. Would that clearly qualify as material participation? Also, is there a specific way I need to document my hours?

Yes, 1000 hours per year would definitely qualify you under the material participation tests. The 500+ hour test is just one of several ways to qualify, but it's the most straightforward. For documentation, there's no official IRS form for tracking hours, but you should keep a detailed log or calendar of your business activities. Note the date, time spent, and a brief description of what you did. Digital calendars work well for this if you add details in the notes section. In case of an audit, having contemporaneous records (created at the time, not reconstructed later) is much more convincing. Also track client meetings, project work, administrative tasks, marketing efforts - everything related to your business.

Your accountant is correct. Even frequent trading typically goes on Schedule D as capital gains/losses, not Schedule C. The only exception might be if you're a professional trader who has made a special tax election. Most day traders, even active ones, don't qualify for trader tax status. The requirements are super strict.

That's definitely concerning. Can I ask what happened specifically that made them determine it wasn't a real business? Did you have clients and actual business operations? I'm planning to have legitimate clients and services, proper accounting, a business license, etc.

I did have a few clients and made some revenue, but the IRS found several problems with my approach. First, I wasn't keeping good business records or tracking expenses properly. Second, I never created a formal business plan or showed evidence of trying to make the business profitable. Third, I continued with the same approach for 3 years despite consistent losses. The big red flag was that my expenses were all things I would have bought anyway for my hobby (camera equipment, travel to scenic locations, etc.), and most of my "clients" were friends and family. The IRS is looking for real efforts to operate profitably. Since your background is in IT consulting, with actual expertise and a clear market for services, you'll have a much stronger case than I did. Just make sure you run it like a serious business from day one.