Entrepreneurs Defeat the IRS; Save Taxes

For as long as LLCs and LLPs have existed, a business owner's salary could not be offset by business losses. For example, let's say you own a barber shop and a billiard hall. Together your two businesses lost $75,000, and you earned $100,000 in combined salary working as a barber and as a billiard hall manager. According to the IRS, you have $100,000 in taxable income. That doesn't make sense to me. That also didn't make sense to the recent tax court. Under the recent decision, so long as the owner actively participates in the businesses, the business losses would rightfully offset personal income, and you would only have $25,000 in taxable income. That is a victory for entrepreneurs. However, I am also worried that this may prove in the future to be a double-edged sword. This decision may invite greater assessments of self-employment tax on LLP and LLC income. In the past, owners/investors have claimed large exemptions from taxes on this income by asserting limited partner status. We entrepreneurs may not be able to have our cake and eat it too. The IRS will argue that either the income is exempt, or the losses are deductions.