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How Elite Hobbies Let Billionaires Pay No Tax
More from Propublica’s IRS Leaks
When you hear that a billionaire has bought a horse or a newspaper or a sports team, you might think it’s just dilletantish dabbling by a member of the parasite class with nothing better to do with their time — a way to make the idle rich slightly more vigorous.
But as Propublica documents in the latest installment of its IRS Leaks reporting — drawing on never-seen tax filings of the ultra-rich — hobbies are a way to pile up gigantic tax write-offs that can be applied to passive income (money you earn for doing nothing). What’s more, though there are limits to the way that hobby-related expenses can be deducted from your tax bill, the super-rich routinely flouts those limits and the underfunded IRS lets them get away with it.
https://www.propublica.org/article/when-youre-a-billionaire-your-hobbies-can-slash-your-tax-bill
If anyone is going to get dinged for aggressively taking deductions from their leisure activities, it’ll be a middle-class person who can’t afford the kind of high-powered consultants, lawyers, and accountants that can tie the IRS up in expensive knots it can’t afford.
The tax code is stacked in favor of elite hobbies. Most of the time, a hobby has to turn a profit in 3 out of 5 years to count as a business and supply deductions. But if your hobby is horse racing, you only have to turn a profit in 2 out of 7 years.
But the wealthy flout even this modest stricture: tobacco billionaire Brad Kelley and Cambell’s Soup billionaire Charlotte Weber both took millions of dollars in horse-losses for 16 or more consecutive years without an IRS investigation.
No surprise, really: the nine criteria the IRS uses to sort side-hustles from hobbies are subjective and easy to argue against. How can the IRS prove that you’re not experiencing undue “personal pleasure or recreation” from your hobby? Even the more objective criteria, like “the expertise of the taxpayer or his or her advisers” can be bought for (billionaire) chump-change. In the case of the horsey set, there’s a whole industry of consultants, breeders, etc who will provide cover to satisfy that test.
