TAX TIPS FOR HORSE OWNERS
(This article was written in 1999 so some of the rates are not
Now that the holiday season is over, horse owners face that dreaded task of assembling all their tax receipts and papers for their accountant. It seems that every time the mailman visits our mailbox, he leaves yet another tax slip.
As a CPA with many years experience preparing equine related tax returns, Id like to suggest a few steps that might make you and your accountants life a little easier this year when preparing your tax return. This article is directed at those who run their horse operation as a business, and not for hobby owners.
A good place to start when assembling tax information for your accountant is to refer back to your last years tax return. If your horse related activities are run as a business, they will most probably appear on Schedule F- Profit or Loss from Farming. Review your income and deductions claimed and ensure when compiling your current years information that you have figures for all the income and deduction items. If you no longer have certain expenses that you had in the past, make a note to your accountant to that effect (it will save him looking for information that he will not find!)
Also review the depreciation schedule included with your prior year tax return. This schedule tracks your business asset acquisitions such as vehicles, equipment, depreciable horses etc. I often find that this schedule hasnt been kept updated for sales and disposals of assets. If you find items on it that you no longer have, let your accountant know what happened to them, and he
will adjust the schedule as necessary. Also, make a list of any equipment, vehicle, horse and other asset purchases you have made in the year, listing a description of the item, date purchased and price. Be sure not to include these items in the expenses you have claimed for schedule F. For horses purchased, also list the sex of the animal, age and for what purpose the animal was purchased.
Its a good idea to provide your accountant an inventory of all horses owned, identifying whether the horses were purchased or raised, and if purchased at what price. If any of your horses die, be sure to tell your accountant so that he may adjust your tax records accordingly. Also, indicate if any of your horses are co-owned with another party. If you have sold any horses on an installment plan, give your accountant complete details about the sale.
Vehicle expenses are another area where I usually have to fish for information. Business owners should be keeping track of their mileage and/or vehicle expenses for business purposes. If the standard mileage rate was not used in the first year a vehicle was put into service, it cant be used in subsequent year, the actual expense method must be used. Actual expenses may include gas, oil, repairs, license tags, insurance, lease, rental, cleaning, interest and depreciation. Tolls and parking fees may be claimed even if the standard mileage rate is used. For those who calculate their deduction using the standard mileage rate, the rate for 1998 was 32.5 cents per mile. Note that for 1999, the IRS has reduced the allowable rate to 31 cents per mile effective April 1999.
If you sold livestock due to the drought conditions prevalent across Texas this summer, you may want to ask your accountant if you qualify for an income tax deferral on this income. Very specific conditions must be met to qualify for this tax deferral.
Many farming activities are at risk of being treated as hobby activities for tax purposes. The tax code provides that an activity which consists in major part of breeding, training, showing or racing horses will be presumed to be a business activity if it shows two profit years within a specifically defined seven year period.
A "special" presumption exists for new horse businesses. If the taxpayer elects at the appropriate time to use the "special" presumption, the IRS will defer any audit of the horse activity until after the end of the first seven years of the operation. If you are concerned about the profitability of your horse activity, you may want to discuss the merits and pitfalls of this election with your accountant.