1. If a taxpayer has gains and losses from an activity, are they better off classifying the activity as a hobby or as a business? Explain why.

Mr. D works full-time as a systems analyst for a consulting firm. In addition, he sells plants that he raises himself in a greenhouse attached to his residence. During the past 5 years, the results from raising and selling the plants have been as follows: Year Net Profit (Loss) from Scenario 1:

	Scenario 1
Year 1	(2,000)
Year 2	(1,200)
Year 3	1,000
Year 4	2,500
Total Years 1-4	300
Year 5	(500)

2. Please create a scenario (Scenario 2) where the cumulative profits in years 1-4 are still $300 but the taxpayer would be in a better position regarding year 5 losses.

	Scenario 1	Scenario 2
Year 1	(2,000)
Year 2	(1,200)
Year 3	1,000
Year 4	2,500
Total Years 1-4	300	300
Year 5	(500)	(500)

3. Comment on your answer to 2 above. Why is Scenario 2 better for the taxpayer? You may also show your erudition by citing, referencing, and attaching additional sources.