Philosophy of Business Losses

By Jason Watson (Google+)

As any politician and economist will tell you, the key to a healthy economy is the strength of small businesses. Small businesses innovate, are typically the first ones to hire and have a unique way of becoming major players in local communities. Therefore, the tax code allows you to deduct business losses from other sources of income as a way to encourage you to take the risk of starting a new business.

In the same breath, politicians and economists will also say that the deduction of expenses for a venture that is a hobby does not help the economy and in some cases the venture might be a drain on society’s resources. It makes sense that the tax benefits of running a business should only exist if you are actually trying to turn a profit.