TAXPAYER RUNS HER CAT HOBBY THROUGH HER CORPORATION AND GETS SKINNED

Financing a hobby through a corporation comes with a double tax whammy. The firm can’t write off the losses. And the owner has a taxable dividend equal to the amount of out-of-pocket costs that the corporation paid for the activity.

A cat breeder and fancier found this out when she had her profitable consulting firm operate her cattery. The cattery won championships,but it was extremely unprofitable. An Appeals Court held that the cattery wasn’t a trade or business of the corporation, but was instead the personal hobby of the shareholder (DKD Enterprises, 8th Cir.).