I struggle with the term “business” in my tax business almost daily.  You might call an activity a business and the IRS doesn’t agree.  If you’re talking taxes, you need to pay attention to what the IRS has as definitions.

For example:  ”Passive” business that is 10 hours or less per month.  It’s a passive activity, not an active business.  That means your deductions are probably going to be limited.

Real estate “business” that involves buying properties and then renting them out.  IRS says that’s an investment, not a business.

Setting up a corporation.  I’m surprised how many times this one comes up.  Someone sets up a business structure, without any business purpose, and assumes that means they have a business and less tax.

It’s confusing enough when you talk about taxes and the definition of business, what about when you talk about ways of making money?  In other words, when is it a business and when is it an investment?

This whole discussion is prompted by a chain of comments on my Facebook page regarding affiliate marketing.  Scott Bradley, a really smart guy, gently challenged the concept of affiliate marketing as a business.  His definition includes longer term strategies that build relationship.  The thing I like most about Facebook and Twitter is that I get the chance to challenge my own thinking.  That’s because I agree what Scott was saying and at the same time I like the concept of affiliate marketing.  

I realize now where the conflict was for me.  Affiliate marketing doesn’t meet my definition of business either.  I think of business as something where there are customers, patients and/or clients.  You build relationships and together, grow businesses, health, lives - in other words, there is a long term commitment.

If you think of it that way, stock investing (as well as Forex, bonds, options) is not a business either.  And neither is real estate.   

For a long time, I’ve talked about (and thought about) wealth-building as a three-legged stool:  One leg is business, another is paper investments and the 3rd is real estate.  I think that affiliate marketing is a 4th leg.  It doesn’t fit my definition of any of the other types of money-making categories.

Actually, I like this definition a lot.  With this, you have 4 ways of making money.  A 4 legged chair is more secure than a 3 legged stool. And in today’s economic times and as we move from the Industrial Age to Information Age economics, we need all the security we can get!