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Horsemen, Don’t Let Taxmen Break Your Heart

Is cash from horse racing tax-free or do you get taxed until it breaks your heart? This question hounds newbies who are new to the circuit, and even those who have been around much longer but have never won large enough to merit the filing of tax forms.

The truth of this horsing matter is that horse racing and breeding expenses may be tax deductible - but only if you can prove you don’t race or breed horses as a hobby. What kind of proof does the IRS need? A lot! After all, the IRS does not fool around when it comes to matters of the wallet. As a matter of fact, the IRS has a list of requirements you must meet to prove you are operating a business and are not engaged in a hobby.

These include:

1. You depend on your income from horse racing or breeding for your sustenance.

2. You invested money, time, and effort into making the business profitable. To this end, you must be able to show you are either running the business yourself or are directly involved in its operations. Consequently, you must put in a lot of documented hours - time for which you are compensated or are directly profiting from.

3. You are racing or breeding horses in a businesslike manner. Thus, you keep exact and verifiable records of your cash inflow and outflow, and the horse racing system of accounting that you follow.

4. Your business must be raking in profit. More concretely, to avoid having your venture classified as a hobby, it must be in the black for at least two out of every seven years. Otherwise, the IRS would have reasons to suspect you are simply using horse breeding or racing as a tax shelter, and thus, they will be more likely to audit you. It’s no mean feat having the IRS poke their long noses into your business. You will find yourself having to come up with truckloads of documents. At the very least, you will have to hire a tax lawyer to defend your claim of running a legitimate business.

5. Your losses must be in the normal range expected of a start-up business. Other losses must be due to of circumstances beyond your control. Again, the IRS does not want you turning the venture into a tax shelter.

Horse racing or breeding is fun, but not when it’s time to deal with the IRS. To avoid unnecessary headache come tax season, make use of many horse racing tip and equine resources found online. While many only discuss the basics of punting, there are materials that teach horsemen how to get their figures right for the taxmen.

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