Will paula be permitted to offset her loss from consulting

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Paula started XYZ Inc. in 2005 and participated in the business (performing consulting services) for more than 700 hours per year from 2009 to 2014. Due to other responsibilities, Paula has not participated in the business from 2015 to 2017. In 2018, Paula participates in the business for 150 hours and contributes more time to the business than any other individual (including employees). During these years, Paula derives most of her income from her salary as a CPA. Unfortunately, in 2019, Paula had a $50,000 loss from the business.

Problem A) Will Paula be permitted to offset her loss from the consulting business against her salary as a CPA in 2019 (assuming no participation in the business for 2019)? If so, why?

Problem B) How would your answer change if she had a basis and at-risk amount of $10,000 in the consulting business?

Problem C) Given a $10,000 at-risk amount, what strategies would you recommend to Paula if she is interested in maximizing her tax deductions?

Reference no: EM132796475

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