As far as taking a loss, business vs hobby goes, the answer I got:
An activity is presumed for profit if it makes a profit in at least three of the last five tax years, including the current year. The fourth year of a loss would put you in the hobby loss, which is an activity not for profit.
If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations.
Pay attention to the last 2 sentences.
Basically you can show a loss for three years, then you HAVE to make money, or break even. The IRS does not want a bunch of hopheads saying HEY! I can incorporate my homebrew activity, not sell anything and use that to offset earned income and never pay taxes! If you lose for 3+ years, it's a hobby. Hidden hint: Don't show a loss year 4 and break even year 5. Another thing is, I know I am pushing the limits of the tax code, I am prepared for an audit. I am also not trying to NOT pay any taxes, however I do pay significantly less then otherwise. I am not an accountant of an attorney, DO NOT quote me.
Like I said prior get to know a good accountant. There a TON of benefits in the US tax code to help out the small business owner.
As far as profits go: I grow hops, barley and some yeast strains. In an area where the local HBS is 1+ hours away, it is VERY easy to get a network of homebrewers together VERY EASY.
I also brew cider, root beer and roast coffee beans. All of which are sellable without special licensing.
I talked with the local community colleges and trade-skill centers. I do brewing lectures pretty much every quarter, and other groups: a couple churches, the Y, Elks and a Electricians Union have had me come do some fun presentations on homebrewing. All of which I get paid to do. It is amazing how many groups, companies have budgeted for guest speakers and are just dieing for a fun new topic.
I have also been selling tshirts for about 10 years now, and it's been a nice cash cow.
If you really wanted to push limits, I think you could claim a loss for 3 years, defunct your business the next year, ie don't claim anything, may have to go two, and then be right back in business (ie losing money) again the following year. I imagine you would get audited the 2nd cycle, but an audit can only go back 5 years, so the first 3 years of losing would be untouchable. Remember, don't do the crime if you can't do the time.