1. Your worst horse wouldn't be harmed if he was set loose on a freeway at rush hour, but your best horse will somehow injure himself in a rolling green idyllic pasture;
2. The one day you choose to just "hop on" without a helmet will be the day your horse violently spooks at an imaginary monster
Just kidding; while those are true, the maxim is that 'Death and Taxes' are the two most certain things in life. Welcome to tax season!
Equine tax losses are a MAJOR red flag for the IRS. Horses and sailboats are known as the top two businesses that the IRS loves to hate. The IRS calls them "hobby losses."
In a recent IRS case, a man bred Morgan horses. His first business angle was to breed "grade horses," which are below show quality (for Morgan breed shows). He wasn't financially successful in that, so he switched his plan to breeding premiere, world-class horses, and made some money, but also wrote-off a lot of expenses.
He didn't ride the horses for pleasure, he only hired experts to ride and train them. He kept accounting records. He switched methods of breeding to try to increase his profits.
However, the IRS shook its head and declared that the Morgan breeding business was a hobby. It made this decision on two key points:
1. The breeder did not have a separate bank account for his horse business
2. His business plan had "too generalized goals." The tax court wanted: financial projections, economic forecasts, and other detailed analyses for cutting expenses, increasing profits, and evaluating the "overall performance of the operation."
The decision might be overturned on appeal, but in the meantime, if you run an equine business be sure to have a separate bank account and a bullet-proof business plan!
If you're an equine business owner, do you feel your financials could hold up to the IRS?
Side Note: My family had a Morgan named Rebel many years ago- a great horse- though a bit hot. And I love the history of the Morgan horse and how it got its name. It is interesting that I don't see many Morgan's in the hunter/jumper show ring; do you see them showing outside of Morgan breed shows very much?