Aug 24, 2025
Significant Participation Activity
A significant participation activity (SPA) is a trade or business activity where you participate for more than 100 hours during the tax year, but your involvement doesn't meet the stricter "material participation" standards.
Overview
Example:
- Renting out a property and spending over 100 hours on repairs and maintenance, but not managing tenants or day-to-day operations.
Tax Impact
- Potential Reclassification: If your combined SPA hours across all activities exceed 500 in a year, the income from those activities can be reclassified as non-passive. This means you can offset losses with other income, but any gains are taxed at higher ordinary income rates.
- Material Participation: Simply meeting the SPA threshold doesn't automatically qualify you for material participation. You still need to meet one of the defined tests for full tax benefits.
References
Related Resources
Oct 9, 2025
IRS Furloughs Nearly Half Its Staff - Here’s What It Means for You
October 9th 2025 - IRS furloughs 34,000 employees (about 46% of staff), pausing most mail, help lines, and admin functions. Tax deadlines remain in place — October 15 extension filers must still submit and pay on time. E-filing, online payments, and IRS systems remain active but may process more slowly. Expect refund and correspondence delays; stay proactive and keep confirmations for all filings.
Oct 7, 2025
The Hidden Tax Opportunity Most Law Firm Partners Miss
For many lawyers, the journey from associate to partner marks the peak of a long, demanding career. But when it comes to taxes, most partners—especially those in small and midsize firms—are unknowingly leaving significant money on the table.
Oct 3, 2025
Sole Proprietorship vs LLC: Which Is Better for Your Business? | Gelt
Starting a business means making a lot of decisions early on, including how to structure it. One of the first (and most important) choices entrepreneurs face is deciding between a sole proprietorship and a limited liability company (LLC). This decision impacts your taxes, your liability, and even how your business is perceived by clients and investors. While sole proprietorships are simple and low-cost, LLCs offer liability protection and flexible tax treatment. Let’s break down the pros, cons, and key factors so you can choose the right fit.