Agriculture Reference
In-Depth Information
between? It is advisable to keep a log of the hours you actually work in your business. You
may be asked verbally or in writing if you have expectation and basis that your assets will
appreciate. You should have a projected profit plan available, which is updated each year.
The IRS will also review your success in both similar and different types of businesses
you have had. They will look at the previous history of profit or loss of your current horse
business. They may look at your overall financial status and see how the horse business
relates to your total income picture. It will do this to try to determine if you are legitim-
ately profit-motivated or if you entered the horse business to use the deductions to offset
your income from another area. Also, because many non-horse-owning people see only the
pleasurable aspects of horse ownership, you may be asked to justify the business nature of
your horse operation. You may know of the hard physical work, the early hours, and the
many personal sacrifices that are required to run a successful horse operation, but an IRS
representative may envision you only galloping across a meadow, heading for a tax shelter.
If you are in the horse business, just keep good records and find an experienced farm tax
counselor. He or she will help you define and understand income and expenses in current
terms.
INCOME
You must report all income related to your horse business. This includes horses bought for
immediate resale, horses raised and sold, and assets acquired for the business and then sold
(for example, a trailer, a saddle, or breeding stock). It also includes prizes and awards, show
and track winnings, boarding fees, training fees, lesson fees, proceeds from hosting events
and clinics, and income from the sale of farmraised grain, hay, and straw.
If you engage in bartering, the services or goods you receive are considered income and
must be recorded at the fair market value of the item or service. For your half of the trade in
bartering, what you gave will be considered an expense if it would have been a deduction
in the normal course of business.
EXPENSES
Horse business expenses generally fall into one of three categories: those operating ex-
penses that are entirely horse-related and fully deducted in the year the expense is incurred;
those that are shared expenses with domestic or other businesses and must be prorated and
then the horse portion deducted in the year incurred; and those major expenses that are
spread out (depreciated) over several years.
The operating expenses are fairly straightforward. Either your expenditures, such as feed
and veterinary supplies, are “ordinary and necessary” for your business or they are not. Be
