Question

Discuss the ways in which gross income can be reduced by the various losses (casualty loss, business losses, hobby losses, related party losses).

Answer 1

Answer

casualty loss:

A casualty loss is a type of tax loss that is a sudden, unexpected, or unusual event.^[1] Damage or loss resulting from progressive deterioration of property through a steadily operating cause would not be a casualty loss. “Other casualty” are events similar to “fire, storm, or shipwreck.” It is generally held that wherever force is applied to property which the owner-taxpayer is either unaware of because of the hidden nature of such application or is powerless to act to prevent the same because of the suddenness thereof or some other disability and damage results.

business losses:

In financial accounting, a loss is a decrease in net income that is outside the normal operations of the business. Losses can result from a number of activities such as; sale of an asset for less than its carrying amount, the write-down of assets, or a loss from lawsuits.

hobby losses:

A non-deductible loss incurred as a result of doing an activity for personal pleasure instead of for profit. A taxpayer cannot deduct the hobby loss as a business loss. A "hobby loss rule" is used to determine whether an activity is a hobby or a business.

Related party losses:
A gain on a related party transaction is generally recognized, but losses are not. That means if you sell numerous items to a related party, all of the "gain" items are added up and reported on your tax return, but all of the "loss" items are not.