In order to continue to write off your horse related expenses, you need to show a profit in three out of five years. An accountant can explain the exact requirements, but if you don't meet them your business will be considered a hobby by the Internal Revenue Service and you won't be able to deduct your horse expenses.
Many people enjoy owning horses as a hobby, but they are expensive to own and maintain. If you use them for business purposes, you may able able to deduct some of your expenses when you file your income tax return. You need to talk to an accountant to learn the specific rules, but there are some general things you can do to prepare to write off your horse expenses.
Establish a horse-related business. The type of business is up to you, as long as it involves your horses. For example, you can give riding lessons or take people out on trail rides. Other options include competing professionally in horse shows or owning racehorses or running a dude ranch. You may want to talk to your accountant about what the best option might be for your particular situation.
Talk to an attorney about whether you should register the business legally as a limited liability corporation or in some other manner. This will depend on your individual circumstances, but it can offer financial advantages and protection from certain liabilities.
Talk to your insurance agent about the coverage you will need if people will be interacting with your horses. You may need a policy that covers any accidents or incidents involving your animals and property.
Keep track of the income and expenses related to your horse business. It is very important to keep detailed records in case you are ever audited by the Internal Revenue Service. You can use accounting software, and be sure to save all of your receipts. Keep all of the documentation you would need in case of an audit.
Have a professional prepare your tax returns at the end of the year. Unless you have special expertise in accounting, it's well worth leaving this job to a professional who can maximize your horse-related deductions. If possible, chose an accountant who has experience working with equestrian-related businesses.
- Photo: Barb Nefer