If a Taxpayer Can Satisfy the Three-Out-Of-Five Year Presumption Test

question 94

True/False

If a taxpayer can satisfy the three-out-of-five year presumption test associated with hobby losses, then expenses from the activity can be deducted in excess of the gross income from the activity.

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Definitions:

Common Stock

A form of corporate equity ownership, a type of security that represents ownership in a corporation, with voting rights and a claim on a portion of its profits in the form of dividends.

Preferred Stock

Capital stock that has some preferences over common stock.

Times Interest Earned

A financial ratio that measures a company's ability to meet its interest payments with its earnings before interest and taxes.

Interest Coverage Ratio

A financial metric that measures a company's ability to pay interest on its outstanding debt with its operating income.