Equine Profitability Analysis

Showing Profit Intent in the Tax Man’s Arena 

     Equine business owners historically have had difficulty convincing the IRS they are engaged in business for profit.  Inadequate record keeping, lack of a business plan and failure to consult professionals are ongoing weaknesses common in the equine industry and a horse-wreck waiting to happen.   

     The IRS unloads the burden of proving profit intent squarely at the equine business owner’s barn door.  Its implementation of increasingly rigorous audit compliance standards makes it essential for owners to be able to demonstrate the profit potential of their activities when it is show time. 

     There are several effective ways of supporting the assertion your desire is to make money in the horse business.

1)     Do your research and keep documentation.

2)     Have a professionally prepared business plan.

3)     Document actions taken to implement the written plan.

4)     Evaluate and amend the plan on an ongoing basis.  If projected results are not realized, determine why and develop alternate courses of action. 

5)     Set up and maintain systems to record the business’s activities.  This includes accounting, breeding, training, and management decisions.

6)     Prepare a budget.

7)     Setup and reconcile monthly separate bank accounts for the business.

8)     Evaluate the pros and cons of setting up your equine business as a separate entity.

9)     Seek professional services from trainers, veterinarians, lawyers, accountants, insurance agents and any other individual able to aide in making good decisions for your equine business.  Document these consultations.

10) Document time spent and type of activities performed by you for your business.

     In summary, conduct yourself as a business using the best business practices available.

     While the above list does not guarantee the IRS will agree the business’s motive is a profit, it does provide supporting documentation for the fact you want to make money in the horse business.  Do not wait until the horses have escaped the barn before closing the door.  Be proactive.  Put systems into place with the help of qualified professionals that will make a trip to the tax man’s arena a win for you.