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:

Direct Labor Costs

The compensation and perks provided to workers directly engaged in manufacturing products or delivering services.

Cash Account

An account that records all transactions involving the cash of a company, including receipts and payments.

Raw Materials Inventory

Items and substances in stock that will be used in the manufacturing process to create goods and products.

Net Operating Income

A company's revenue minus its operating expenses, excluding taxes and interest.