By Len Green
We are on the cusp of the two largest yearling sales–The Keeneland September and Fasig-Tipton October sales. Keeneland is slated to sell over 4,600 yearlings with Fasig scheduled to offer about 1,500 yearlings in their upcoming Kentucky Sale. Currently the yearling market is strong, with record sales being achieved in the first two summer events.
These sales provide you with a Golden Opportunity to meet the Tax Documentation Requirements of an “Active Thoroughbred Horse Business.”
Every hour looking at horses, spending time with your advisors at the sale, traveling to and from the sales and any advanced prep work you do all count in calculating both the 600 active hour test and towards the 1,000 total hour test.
Aside from time spent with your trainer, communication and meetings with your vet also count towards the hourly tests.
Vet expenses can often be pre-negotiated if you provide the veterinarian with an advanced idea of your service needs. We provide the vet with an estimate of how many horses we plan on vetting out per day. We also have banded together with other buyers to hire an X-ray reader who is stationed in the repository for the length of the sale. Under this arrangement, the designated person reviews most X-rays in the repository and provides the group with a preliminary report of his/her findings. Each member of the group pays a flat, per-diem rate. Based on the preliminary findings, you can either cross a horse of the list or ask your primary veterinarian to conduct an inspection on any possible issues/concerns.
Time spent on developing a business plan, a budget and developing a strategy on how you approach the buying of horses ALL count toward the active hours.
The new Tax Act greatly benefits the “Active Horseperson” in that it allows you to take a full tax deduction for yearlings you purchase, as long as you buy them before the end of the year. Even if you obtain financing to buy the horses, you are still entitled to the FULL tax write-offs!
So, if you have a loss carryforward, you can strategically hold off placing your purchases into use, thus deferring the expenses to a future year.
One other “practical suggestion” – dedicate one of your credit cards solely for equine-related expenses for the following reasons: a) it will prove to the IRS that you have a separate way to account for those expenses b) segregate your horse-related expenditures from your personal or other business-related expenses (thus keeping those latter items out of the IRS' purview) c) most credit cards provide you with a year-end summary which will aid you with your hourly documentation and d) you can apply the points earned on that credit card towards personal use and may not have to report them as taxable benefits (i.e. gift cards, hotel room upgrades, complimentary club dues, airline seat upgrades, etc.).
The upcoming sales provide you with one of the best opportunities to purchase an asset which can provide tax deductions and future winners! The beauty of the larger sales is that there are horses offered at every price point.
Take full advantage of the tax deductions by keeping track of your expenses and use the above-mentioned business strategies to help you become successful in this industry.
We hope you enjoyed this month's article and, as always, please feel free to call The Green Group at (732) 634-5100 and speak to one of our equine tax experts. Remember to mention TDN and receive your first one-hour confidential and complimentary session.