Running a horse business is undoubtedly rewarding, but it also comes with its fair share of challenges. Keeping accurate financial records is essential. But is simply having a Balance Sheet and a Profit & Loss/Income Statement enough? The short answer is no. Merely looking at your revenues, expenses, and net income every once in a while is a short-sighted strategy that could be detrimental to your business’s growth.
Think of it this way: If you were a basketball coach, would you simply wait until the end of the game to see if your team won? Of course not! You would keep track of the score throughout the game, adjust your strategy as needed, and make decisions that could either protect a lead or help your team come from behind. The same approach should apply to your business. Did you know that there are ways to reduce your expenses and reap the tax benefits of horse ownership?
In this blog, we’ll explore how to avoid audits and horse business penalties by taking advantage of equine tax laws and deducting business expenses.
Equine Tax Law
Before we dive into the specifics of deductions, let’s review how equine tax law works. For many years, equine business ventures were restricted in their ability to deduct appropriate business expenses based on a 24-month capital gains period per horse. However, newly amended tax laws like the Equine Tax Parity Act have allowed horse owners to take advantage of these benefits after a reduced 12-month capital gain period. This makes it easier than ever for new business owners to grow their operations.
1. Keep Accurate Records
Keeping accurate records is essential for any horse business. You need a scoreboard that displays the correct metrics, is consistently up-to-date, and drives strategic decisions to improve performance. This scoreboard starts with selecting the right accounting software and creating the appropriate chart of accounts that allows you to see meaningful metrics. Make sure to keep detailed records of all your business transactions, including expenses, income, and receipts. This will not only help you stay organized but also provide evidence in case of an audit.
2. Hire a Professional Accountant
Hiring a professional accountant is a great way to ensure that your horse business stays on top of its finances. A professional accountant can help you keep accurate records, file your taxes correctly, and provide advice on tax deductions and credits. They can also help you avoid costly mistakes that could result in penalties.
3. Understand Tax Deductions
As a horse business owner, there are many tax deductions available to you. Make sure you understand these deductions and take advantage of them. Some common deductions include expenses related to feed, veterinary care, training, and travel. By taking advantage of these deductions, you can reduce your tax liability and avoid penalties.
4. Keep Business and Personal Expenses Separate
It’s important to keep your business and personal expenses separate to avoid confusion and potential penalties. Make sure to have separate bank accounts and credit cards for your horse business. This will help you keep track of business expenses and ensure that you’re not mixing personal and business expenses.
5. Stay Up-to-Date on Regulations
Regulations regarding horse businesses can vary by state and even by city, so it’s important to stay up-to-date on the latest rules and regulations. This can help you avoid penalties and fines for non-compliance. Consider joining industry associations and networking with other horse business owners to stay informed about changes that could affect your business.
In conclusion, running a horse business can be challenging, but by following these tips, you can avoid audits and penalties and keep your business on track. Remember to keep accurate records, hire a professional accountant, understand tax deductions, keep business and personal expenses separate, and stay up-to-date on regulations. By doing so, you can ensure the success of your horse business for years to come.
