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  1. #1
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    Question Horses and Taxes

    After doing my taxes and seeing I OWE this year , taxes and various write offs have been on my mind! So, I have a bunch of questions. Back when I was riding and showing, I was in highschool and didn't care about taxes, lol. Through college I took a break from horses, but getting back into it, and am planning to purchase a horse this summer. Saying I make it a project horse, can I use my horse expenses as tax write offs? Would I have to make an LLC? Most importantly, if I were to do this, would this affect my amature status? Finally, when you do sell your horses, LLC or not, do you declare this as part of your income for the year?
    Sorry, I know that these are random questions, but I am trying to make my jump back into the horse show world as affordable as possible. I posted here in H/J because I worry that this would affect my amature status, but you guys on here hopefully have some insights! How do you handle all of this?



  2. #2
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    Buying and selling YOUR OWN horses doesn't affect your amateur status. You own them you can sell them and hopefully make money on them.

    Or at least write off expenses. Someone here with more education will need to help you with the taxes and IRS part.



  3. #3
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    Nov. 21, 2005
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    i'm not a CPA, but you should definitely talk to your CPA about this. the CPA fees will be tax-deductible and the money you could save deducting your horse expenses will be worth it. the tax code actually has a lot of horse-favoring provisions in it (i think you can thank the racehorse industry & their lobbyists for that). for example, you can declare a "loss" for a horse related business for 5 of the initial 7 years while it's something like 3 of the initial 5 years for a regular business. the IRS has limits so that people don't try to declare hobbies as businesses (hence the "hobby-loss" rules).

    as tax professionals say, "pigs get fat, hogs get slaughtered". so keep in mind that you can of course make the tax code work for you, but if you do it too much, you could be flagged for audit. that being said, i have a friend whose CPA has her take her horse expenses as a deduction every year. she's an ammie and i guess the horse is a sole proprietorship-type business (there is no LLC in place). depending on where you live, LLCs have annual fees associated with them, which is not what you're looking for i think.

    i think if you do a search here on coth, i think there have been several threads on this too



  4. #4
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    Talk to an accountant for details, but I am an amateur with an incorporated farm. I have 2 boarders, sell 1 or 2 horses per year, and judge local shows. I write off EVERYTHING including showing expenses, tack, property expenses, i.e. depreciation of fencing, structures, even my jumps and 4-wheelers, etc. Accountant costs me $400 per year and worth every penny!!



  5. #5
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    It seems to be difficult to Google for information that is current, so it would be wisest to rely on information provided to you by a tax professional. A CPA who specializes in equestrian business accounting will be able to advise you.

    Your IRS status as a business is a completely different issue than your status as a USEF amateur. USEF rules are all about whether you are paid to teach or ride. IRS rules are concerned with whether you are operating a business or pursuing a hobby.



  6. #6
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    Quote Originally Posted by M. O'Connor View Post
    It seems to be difficult to Google for information that is current, so it would be wisest to rely on information provided to you by a tax professional. A CPA who specializes in equestrian business accounting will be able to advise you.

    Your IRS status as a business is a completely different issue than your status as a USEF amateur. USEF rules are all about whether you are paid to teach or ride. IRS rules are concerned with whether you are operating a business or pursuing a hobby.
    So essentially I can declare my self as some sort of equine business to the IRS and write off my expenses, but seeing as no one is actually paying me for anything regarding horses, I can still compete as an Ammie? Let me add that I am DEFINATELY a legit ammie, no shammature here, just trying to keep my $$ in my pocket! This is all great news for my prospective showing! I will definately be getting an accountant for next year's taxes. Horses are expensive enough, if they can help me hold onto a little bit of my salary, that is a definate plus.
    Last edited by BreathEasy; Mar. 1, 2011 at 08:31 PM. Reason: added



  7. #7
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    I would definitely talk to a CPA about this. There are many tax issues concerning this matter.

    First, a business involving horses is a red flag to the IRS because it is generally considered a hobby. So, you are more likely to be audited if you elect to have a horse "business," especially if you only have 1 horse (that is your own). In the event of an audit, you would have to provide adequate evidence that you actually have a horse business.

    Also, please consider that businesses CANNOT declare a loss for 5 consecutive years on their tax returns. In this case, the prior 5 years will be disallowed and you will have to pay tax PLUS PENALTY on the expenses written off over the past five years.

    Please note, I am not a CPA, but my family owns a CPA firm and I am a senior accounting major actively involved in our business. I do not know all of the aspects of this issue and am not claiming to be any expert, so a CPA would be your best source of advice. Again, I would strongly suggest talking to a CPA before making this decision.



  8. #8
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    I definately will talk to a CPA first, but I wanted to see if it was a completely crazy question before doing so. It also helps me decide whether to attempt a project horse, or just buy a horse for me. Thanks for all the replies!
    Last edited by BreathEasy; Mar. 1, 2011 at 11:26 PM. Reason: spelling



  9. #9
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    Not to overtake the thread, but kind of a related question. Lets say your horses are NOT a business and you have never declared them on your taxes, but now you sell your horse for mid 5 figures. Is that income taxable? Of course, if I added up all horse related expenses for the 3 years I owned the horse , I am sure I would be at a loss.



  10. #10
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    I was told that one could write off expenses for sales horses, but then you would obviously have to claim the income when the horse sells. Otherwise your business shows $$$$$ as expenses and $0 as income. Nobody is dumb enough to own a business with literally no income so the IRS will audit and most likely determine you are a hobby, not a business.

    I'm not a CPA, and would recommend you talk to one. It could work if your selling the horse fairly cheap, but like someone above said, you can't do this year after year. You will have to show a profit at some point.
    A lovely horse is always an experience.... It is an emotional experience of the kind that is spoiled by words. ~Beryl Markham



  11. #11
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    Looking into it, it seems you can declare losses for 7 years. Even if i do make a small profit and have to tax it, the write offs should help with my other income. Like i said, i wont do anything without a CPA, just starting to look into it.



  12. #12
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    Talk to a tax attorney. Sometimes it is NOT worth the hassle to quibble with the IRS.

    (And remember, owing just means you didn't overpay your withholdings all year and that you actually made money. A "refund" is just them giving back money they shouldn't have taken in the first place, and the smartest policy is always to make sure that doesn't happen.)



  13. #13
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    Quote Originally Posted by BreathEasy View Post
    So essentially I can declare my self as some sort of equine business to the IRS and write off my expenses, but seeing as no one is actually paying me for anything regarding horses, I can still compete as an Ammie? Let me add that I am DEFINATELY a legit ammie, no shammature here, just trying to keep my $$ in my pocket! This is all great news for my prospective showing! I will definately be getting an accountant for next year's taxes. Horses are expensive enough, if they can help me hold onto a little bit of my salary, that is a definate plus.

    Yes, but there are parameters that you must follow that will enable you to prove to the IRS, should it be necessary, that you have a profit motive. You can't write off ALL your expenses, just the ones that pertain to the portion of your hobby that supplies the profit potential. For most ammies, this means selling a horse from time to time.

    For many, this is not something they are prepared to do, for obvious reasons.



  14. #14
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    Quote Originally Posted by jolise View Post
    Not to overtake the thread, but kind of a related question. Lets say your horses are NOT a business and you have never declared them on your taxes, but now you sell your horse for mid 5 figures. Is that income taxable? Of course, if I added up all horse related expenses for the 3 years I owned the horse , I am sure I would be at a loss.
    IF you showed a net profit (after the purchase price and expenses) then it would be taxable as "hobby income".

    If you show a net loss, then you don't pay tax, but you don't get to take it as a decuction either (you could if it were a business).

    Check with an accountant , or check the IRS web site for "hobby income".
    Janet

    chief feeder and mucker for Music, Spy, Belle and Tiara. Someone else is now feeding and mucking for Chief and Brain (both foxhunting now).



  15. #15
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    The IRS has a quite a loing document, available on line, that expalins IN DETAIL, how they determine whether horse related activities are a hobby or a business.

    Sorry, I do not remember the link, but it is worth checking out even before you talk to an accountant.

    The title may be something like
    The Official IRS Tax Guide to Auditing Horse Activities
    Janet

    chief feeder and mucker for Music, Spy, Belle and Tiara. Someone else is now feeding and mucking for Chief and Brain (both foxhunting now).



  16. #16
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    Not sure you are really a business from what you say...what is your business???

    I had a horse buy/sell business in addition to a job and a well paid hubby. Got audited 3 times in 5 years under "hobby loss"-came thru unscathed twice but got nailed on an error made by the CPA preparing the taxes in figuring the depreciation rate on a used horse trailer. About a $100 blunder, with interest and penalties it was $1500.00 3 years later. They dropped additional penalties because we actually were legit and had made and declared a profit the previous year plus provided good documentation of all expenses/income from that business.

    Just make sure you are a legit business actively seeking to create income. Only so long you can price a "sale horse" at triple it's worth and keep the deductable losses piling up without attracting notice, especially if you have a good income from another source.
    When opportunity knocks it's wearing overalls and looks like work.

    The horse world. Two people. Three opinions.



  17. #17
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    Quote Originally Posted by BreathEasy View Post
    I definately will talk to a CPA first, but I wanted to see if it was a completely crazy question before doing so.
    I think it's kind of crazy...

    A project horse for what? I don't mean to discourage you if you plan to start a legitimate business, particularly one that involves training/boarding (more horse breeding is NOT something society really needs right now), or even showing/competing if it's making you a taxable income and you consistently show a profit after taxes. All the better if your income knocks you into a higher tax bracket .

    The horse industry is a mess right now. I'm nothing more than another opinion but all the attempts at tax relief are hurting the people in the industry that those deductions are really designed for. You may be able to figure out a way to legally subsidize your hobby and come out slightly ahead, but I don't think it's a good idea.

    I may have completely read your initial post incorrectly, or read too much into what you've written. This is a great place to ask these questions but with the information you've provided I can't see how you're contemplating a business plan that will result in a legitimate deduction.
    Last edited by Rbow; Mar. 2, 2011 at 02:16 PM. Reason: clarify



  18. #18
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    This is probably the IRS document referenced earlier:

    http://www.irs.gov/businesses/small/...tml#appendix01

    But, seriously. DO you really own a horse and show said horse with the real intention of making a profit? If the answer REALLY is "yes", then fine, read all the fine print and talk to an accountant or tax attorney. If the answer is "Well, no, I own a horse because I love to ride and show, but wouldn't it be great to keep a little more of my money...", then trying to construe yourself as a business person trying to make a profit just for the tax write-offs is dishonest.

    Your intent really does matter...that whole IRS document is about how they try to determine what the taxpayer's intent is. If you know what your intent is, and it isn't to make a profit, save all the rest of us writing big tax checks a few bucks on your audits and don't waste their time.



  19. #19
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    One of the things that came up in all 3 audits was being asked what qualified me to be running the business.

    In my case, I was able to show that as a private owner I routinely bought inexpensive green horses and sold them a year or two later and used that to buy up on the next one. I had a history of selling if you will.

    Back when, hobby losses were allowed and used to shelter income from other sources. That changed in about the 80s and it's not so easy anymore-particularly if you are using it to shelter other income as opposed to actually making money. They know it and they will be looking for it.
    When opportunity knocks it's wearing overalls and looks like work.

    The horse world. Two people. Three opinions.



  20. #20
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    You need a business plan to be doing this. If you are honestly buying and selling horseS (note the plural) for more money than you pay, and you have a legitimate shot at turning a profit, then it's appropriate.

    If you're thinking you can buy a horse in 2011 for $5k, feed it and show it generating expenses of $12,000 a year for 5 years, and then sell it for $15,000, you're not going to survive the audit. It's okay to have setbacks (horse died, went lame, turned out to suck) but your best case scenario has to have some possibility of turning an honest, clear profit, and your motivation has to be to generate money.
    If you are allergic to a thing, it is best not to put that thing in your mouth, particularly if the thing is cats. - Lemony Snicket



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