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Is That Deductible?

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168 – March/April, 2023

By William Given

With the April 15th filing deadline on the horizon, equine business owners and horse breeders are among the millions of Americans putting their expense records together in advance of preparing their annual IRS 1040 tax returns. With so many people across the country struggling due to an onerous economy, it only makes sense to seek out every reasonable and legal way to save money. This also includes paying less money in taxes wherever possible.

For breeders and business owners, a great many of their equine expenses may genuinely be tax deductible. So, how do you know just what expenses you can legitimately deduct and what you cannot? The answer is somewhat simple. If your intent is to make a profit, that intent justifies the deductions. The main thing is that you have the intent to make money and have a profit, otherwise it is a hobby. Typically, the Internal Revenue Service expects to see a profit every few years. If you fail to make a profit, the IRS may consider it a hobby. For horse breeders and equine business owners, the IRS “Safe Harbor Rule,” accepts a profit in two of the prior seven years as evidence the business is engaged in for profit.

Here are a few tips on determining what horse-related expenses are tax-deductible.

If you have a broodmare that you breed and subsequently sell her foals, this is considered an income, your expenses are deductible. If, by chance, you own and use a horse to give riding lessons, which people pay for, your expenses are deductible. If you take in outside horses for boarding, breeding or training, and your intent is to make a profit, your expenses are deductible.

If you own a well-bred, registered quarter horse which you regularly show, as well as trail ride for pleasure, you obviously incur horse-related expenses on an ongoing basis throughout the year, and although you spend a significant amount of money, because you do so for pleasure and not because you intend to make a profit, none of your expenses may be considered tax-deductible by the IRS.

Click here to read the complete article
168 – March/April, 2023

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