| Profit motive according to the IRS is the intent to | | | | Some professionals consider that doing this may red |
| make money with your business venture within a | | | | flag your business at the IRS but in this time where |
| reasonable time. And for some, they want to | | | | the economy is in a state of turmoil, it may give you |
| enhance their lives, gain independence, and have | | | | the needed time to start making a profit. |
| control over their future and to enjoy the horse and | | | | I would urge you not to waste the time gained in |
| the lifestyle that accompanies that enjoyment. | | | | hoping that the enterprise will become profitable |
| For others, in the horse industry, they have a | | | | during that time. An owner should be looking at the |
| substantial primary income; lots of disposable funds | | | | changes that are occurring in the marketplace and |
| and a tax bill that is 40 to 50% of their gross. So, | | | | developing a plan to counter the results of those |
| having heard that you can lose lots of money with | | | | changes. |
| horses and deduct the expenses, they become | | | | I am particularly aware that some disciplines and |
| involved in horses. | | | | horse business ventures are still making a profit even |
| This way of reducing your tax bill is not | | | | in a down economy. Additionally the horse population |
| recommended by me or any of the professionals, | | | | has expanded by 2 million in the last 10 years |
| (attorneys, accountants, business advisers) I know, | | | | increasing the work force necessary to service that |
| for the simple reason that sooner or later, the tax | | | | growth and the economy surrounding it. |
| man will want to know how you lost so much money | | | | If a business is nearing it's third year of being in |
| and are still in business. A prudent business owner will | | | | operation and the expenses are still way ahead of |
| want to make a profit in a reasonable amount of | | | | income, the owner should be looking at the business |
| time or sell the business venture to someone who | | | | and analyzing what can be improved or changed to |
| thinks that they can make it go or more simply just | | | | reach a profitable year more quickly. They should be |
| close the doors. | | | | looking for ways to increase their customer base, |
| To have a profit oriented motive does not mean | | | | pare costs and overhead, and overhaul their |
| that you can or have to accomplish that in the first | | | | advertising to respond to the current market. |
| year. In fact, you may not be able to accomplish it | | | | Your location, (urban, suburban, or rural), choice of |
| for a period of years. Depending on what part of the | | | | venture, (breeding, boarding, training, etc.), market |
| industry you enter, there will be a period of time in | | | | conditions for your business in the region or area that |
| which you have to acquire a location to conduct your | | | | your business is located in are factors to be |
| business, hire and train employees, build | | | | reviewed with your board of advisors. |
| improvements, do research on market conditions | | | | Market conditions differ greatly from one area to |
| relating to the business, etc. These items can be | | | | another. Registered working horses at one sale may |
| capitalized over a minimum period of 60 months. | | | | be $2500 or less and five hundred miles away, the |
| A person that opens a boarding barn or becomes a | | | | same horse will bring double or triple that price. Show |
| trainer has a better chance of achieving a profit in a | | | | horses are always in a state of flux depending on |
| shorter period than a person who wants to build a | | | | who is winning with what horse, changes in the breed |
| breeding program involving a particular breed and | | | | association rules, (excessive white rule, one |
| bloodline achieves. One who opens a feed and tack | | | | registered parent rule, how many ounces in the shoe, |
| store or becomes a farrier will be able to show a | | | | length of toe, use of aids (gimmicks), etc.) and the |
| profit within a few months if they have done the | | | | list goes on and on. |
| initial steps to opening a business. | | | | Marketing outside of the auction or show arena is |
| If you have done all the things that are necessary to | | | | important. You should not depend on one avenue of |
| opening a business and it is not going to make a | | | | advertising to establish your training, boarding or |
| profit for some time, you may want to consult with | | | | breeding programs. One must have a realistic |
| your accountant about filing a Form 5213 with the | | | | advertising budget that will entice the buying public to |
| IRS at the end of your tax year. The rules are that | | | | consider buying a horse from you, having you train a |
| the business cannot have been operating for more | | | | horse, boarding their horses with you or breeding to |
| than three years. It will extend the time for a | | | | your stallion.. |
| determination by the IRS as to whether your activity | | | | Your business should be guided towards being |
| is a for-profit or not-for-profit business. This applies | | | | profitable from the very beginning. If the sole |
| to breeding, racing, training or showing horses. The | | | | purpose of the business is to provide you with a |
| period is extended until the sixth year of the | | | | way to pursue your favorite horse activity, you may |
| business in these cases. If your business is not any | | | | want to reconsider whether you are a business or |
| of the above, it will extend the determination until | | | | just a hobbyist looking for a way to deduct your |
| the fourth year of that activity. It will also extend | | | | horse expenses from your gross income. Before the |
| the period that the IRS has to audit your operation | | | | IRS determines it for you. |
| as to whether it is a profit making business or not. | | | | |