Return On Investment: How Horses Can Cut Tax Costs
April 15 is looming, and for those of us in the U.S. that means the dreaded tax deadline is approaching quickly. With just a few weeks left to file your taxes, it’s easy to feel overwhelmed, especially if you own a business. But believe it or not, if you play your cards right when you file, your horses may be able to help you get some money back from the government.
While we are still trying to find a foolproof way to write off our horses in our taxes, there may be ways to deduct costs associated with your horse if the Internal Revenue Service determines that the horse is used for potentially profitable activities, such as giving lessons. One of the biggest questions to answer when determining whether or not you should account for your horse expenses each year is whether your activities are considered a business or a hobby. Learn more about how the IRS determines this here.
While this is by no means a comprehensive guide to equine-related expenses and taxes, this quick primer will give you some things to be aware of as the tax deadline approaches.
Keep the Receipts
This may come as a no-brainer to most, but keeping receipts is one of the most important things you can do as a professional. Whether you earn side money braiding horses at shows or body clipping, you handle social media for equine clients, or you run a busy sales barn, it’s important to keep track of any and all taxable income and related expenses. Come tax season, it will be easy to whip those out and itemize your deductions, which can add up quickly.
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The easiest way to stay organized is to find an accordion file that will allow you to separate receipts by month. If you want to get super fancy, you can have an accordion file for each month or quarter, and file receipts categorically (gas and vehicle expenses, feed, repairs, etc.). Scan receipts and itemize them on a digital spreadsheet. Whatever level of organization suits you best will work.
Remember to keep receipts that you might have considered trivial at the time. The bridle hooks you bought to replace ones that broke are examples of things you can deduct if you own a barn. Even the smallest purchases add up over time.
Turn Over the Couch Cushions
Remember when you were a kid and the ice cream truck was rolling through your neighborhood? You’d turn the house upside down looking for spare change just to buy a popsicle. Use that line of thinking during tax season. What haven’t you thought of or where haven’t you looked for items you can deduct or write off?
The IRS allows equestrian professionals who run horse-related businesses to report receipts as business income, as well as write off expenses and asset depreciations. Do you use your truck and trailer to haul commercially? What about the tractor and drag you use to work the footing at your sales or lesson barn?
How about the lesson horse you added to your program this year? Horses and their respective purchase prices can be factored into your year-end deductions by labeling them as business assets. Horses used for business purposes (racing, showing, breeding, giving lessons, etc.) can depreciate over time just like a truck would.
Don’t Be Afraid to Call in the Troops
Learning the ins and outs of business taxes is not a light undertaking. While it is something you’ll certainly pick up over time, don’t be afraid to call in some assistance. After all, it’s in your best interest to make sure you are getting as much out of your tax filings as you can. Knowing what you can and can’t deduct from your taxes can make a huge difference in whether or not you collect a return versus have to pay out of pocket.
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Consulting a certified public accountant, or CPA, is beneficial particularly to new business owners. There are many who have experience or specialize in equine business. A CPA can help you verify income, evaluate assets and identify deductions that you may not have found on your own.
Know the Rules
Hearing the term “IRS” can send a shudder of fear down anyone’s spine if they’ve watched enough movies, but it doesn’t have to be scary. It’s beneficial to know the rules that apply to you as an horse industry professional. You don’t have to be a full-time trainer or other professional to claim earnings from horse-related avenues. Even part-time work as a contractor means you’ll be responsible for the taxes on that income.
To learn more about self-employment and small business income tax forms and information from the IRS, click here.