Your Equine Business and Taxes

You have a horse business, a stable most likely, and hopefully an eventual profit to show for your effort. What happens next? Uncle Sam wants his cut! Actually, even if you have been operating at a loss (not unusual in a start-up operation), taxes have been a large part of your business finances anyway. Taxes […]

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Treating Two Activities as One for Tax Purposes

Sometimes a farm, livestock or horse activity may be closely con-nected to one’s principal occupation, with certain tax advantages.  If two activities are treated as one, deductions and income from each activity can be aggregated in deciding whether the taxpayer has the requisite profit motive under the IRS hobby loss rule.  This is extremely helpful […]

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The Use of Science and the Hobby Loss Rule

In hobby loss audits, the IRS sometimes views various types of ranching activities as a means of generating tax losses, rather than as a profit-oriented venture.  Many cases that have ruled in favor of the taxpayer in horse or other livestock activities involve people who developed a superior line of animal.  Taking a scientific approach […]

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The Importance of Personal Expertise

In all activities that the IRS regards under the hobby loss rule, including horse ventures, the issue of one’s personal experience and expertise is an important consideration.  In audits, the IRS will ask, among many other things, what expertise you have in conducting this type of venture, and whether you consulted others who are experienced […]

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Tax Deductions for Advertising and Promotional Expenses

In the horse industry, as in other sports such as car racing and Olympics sports, people will pay to have their business name advertised in connection with certain events.  For example, people will establish a new “classic” event, or “cup” to be an annual sporting event for a given sport.  There are many horse show […]

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Tax Deductions for Donating Farm Property

Farmers, ranchers and horse owners can get significant tax deductions by making noncash charitable contributions of farm property to qualified donees–such as agricultural schools or government programs.  This serves two purposes: one, there is a tax deduction available; and two, by culling unneeded animals or equipment, or even land, this shows the IRS that you […]

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The “Material Participation Test” Audit

Often enough taxpayers who are audited in connection with their horse or livestock activities are questioned on the issue known in the tax law as the "material participation test." Under this legal test, you are permitted to deduct losses against outside salary and wages only if, among other things, you "materially participate" in the activity. […]

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Tax Issues in Facing an IRS Audit

The IRS continues to give significant scrutiny to sole proprietorships filing as Schedule C businesses in the horse, livestock and farming industries where there is a history of losses.  The concern of the IRS is that these taxpayers are engaged in a hobby, not a business, and that they should not be allowed to take […]

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IRS Audits of Horse Owners

I receive many phone calls and e-mails from readers who have read my column for a number of years, but it is not possible to provide personal replies to legal questions unless I am your attorney or unless you engage me as your attorney. I am often asked whether it is advisable for a horseman […]

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IRS “Audit Manual” Red Flags

Your horse-related business practices can be a red flag to the IRS. The IRS audit guide for revenue agents is an internal government document not available to the public. The IRS issues tax audit guides for many different categories of taxpayer business. The guide pertaining to the livestock and horse industry tells agents that "the […]

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