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horse industry Jeff Fouts Tax Lawyer tax solutions

The horse industry has seen a rise in audits, so it is important to set your business up correctly.

The horse industry is one of those sectors that most people do not even realize that it exists, much less has a major impact on our economy. Although only 2 million or so people own horses, there are millions more who are annual spectators of different horse events. The horse industry has a huge economic impact on our national economy estimated several years ago to be at least $102 billion plus it provides over 460,000 full-time jobs. When we consider the spin-off jobs in associated industries, we see that the total full-time employment is over 1.4 million jobs—nothing to sneeze at in our job-hungry market.

Horses are used for commercial enterprises such as racing, showing, breeding, and work, and they are also used for pleasure. This is an industry which inherently carries a lot of emotion rather than rationale—most people involved with horses love those horses in a very unique way. There is an emotional connection between man and horse which is not found in other industries.

Setting Up Your Horse Industry Business Properly

Because of this, or perhaps in spite of it, a great number of horse people spend more time on their horse activities than on their business of horse. The IRS is aware of this, focusing their audit and collection activities on this particular group. If you are going to operate a horse business, you must approach it like any other business. Here are some points for you to consider:

  • Consult Experts: If you wish your horse business to succeed, you need to establish a firm foundation for it. Consult a CPA, Tax Lawyer—may I suggest Jeff Fouts, Tax Lawyer—Insurance representative, as well as experts in your field. Your tax lawyer can help you find the appropriate legal business format that will work for the business you are setting up. The CPA can help you establish your accounting system. Consulting an Insurance representative will make sure that you are covered for any event which might happen, and we all know that anything can happen when horses are present. Horse experts all attest to your superior abilities within the field that you have entered. All of this pre-establishment work will add to your credibility as a serious horse business person, and the IRS likes that.
  • Business Plan: Before you even begin, write a business plan. Make this plan as complete as you can, including proposed expenses and income, marketing, operating needs, etc. This plan should be at the heart of your business, and as your business grows, you need to be adjusting it for the new market realities. Perhaps you find that horse racing does not create income, but your breeding programs do. Start moving your business toward the income, regardless of what you personally prefer. This plan should be in writing, and regularly updated.
  • Business Accounts: From the very first day of your business, have a separate business account and separate credit cards which are ONLY used for your business. There are many banks which will give you free checking, so this does not need to be a monthly expense. By doing this, you are creating a distinct entity for your business, which is important for the IRS.
  • Recordkeeping: As with any business, keep excellent written records. There are many fine business programs for the computer which are quite easy to use, such as QuickBooks. Your CPA can set up the different expense and income categories for you, then all you have to do is fill in the blanks each time you receive a check or pay a bill. At the end of a quarter or year, you give a copy of your computer program to your CPA for tax purposes. There is an additional benefit here, for if you make the effort—and it is an effort doing this when you want to be out with your horses—you will have that supporting paperwork that pleases the taxman.
  • Tax Forms: Have your tax returns prepared by a professional. This particular industry probably has more pitfalls than most others, and you really do not want to deliberately create a situation where you will be audited by the IRS.

By doing all of the above tasks, you are moving your horse activities from the realm of hobby to business. Overall, the IRS is brutal when dealing with what they define as hobby businesses. Your intent from the very beginning of your business is to be seen as a legitimate business working toward profit.

Because over the past several years, the horse industry has seen a significant rise in audits of horse operations, it is imperative that you run your business professionally. You are not dealing with pasture ornaments here; in its starkest form, you are dealing with profit-making “units.” That is how the IRS sees your business, and you should always keep that thought in the back of your mind, even when grooming that gorgeous gelding running a two-mile race in the next hour.

If you should have questions or issues, consult Jeff Fouts, Tax Lawyer, and he can help you over the hurdles.

 

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