Something I generally do not advocate any longer is to choose horse breeding as a business venture due to the difficulties in establishing that you're operating a profit driven entity. It is not so much a lack of desire to be profitable, merely the hardship of proving your profitability in today's economy.
Let's face it, the IRS is looking to catch us all not paying our fair share to Uncle Sam. Many people fib numbers, some hide assets or income and some just set out to commit blatant fraud on several levels.
But what really are deductible expenses in relation to your horse business? As long as you are using services and items, purchasing memberships or so forth for your business, they fall under the guidelines. For instance, if you have a cell phone used exclusively for business use, that's deductible. Even computer repairs and maintenance of machines used for business purposes are an allowable deduction. There are also percentages of other expenses which may not exclusively be related to your business which can be taken on your tax return, such as vehicle costs.
Acquisition of breeding stock or animals for use as lesson horses, for instance, along with all expenses associated with them and their upkeep are included on the allowed deductions list as well. Going on a buying spree to find your husband the right trail horse or looking to purchase a barrel racer for your daughter to compete on isn't. Sounds simple, doesn't it?
I keep track of all expenses associated with my business and make sure I'm keeping everything that's business-related separate from our personal expenditures. Some of my horses are used for lessons and as such they have an explicit place in the business; others are not and nothing associated with them is allowable.
Recently I covered developing a comprehensive business plan for your horse-related endeavor. Adding to that advice, I think it is essential that you consult a tax professional, an accountant and an attorney all specializing in equine issues before jumping in with both feet. This is what I did many years ago and to me it just makes good business sense.
Here is another piece of advice too many young people who wish to break into the industry fail to heed ~ go out and talk to those who have been in this industry for many years and take what they have to say to heart. You may not always like what they tell you, but most of us are more than happy to impart our wisdom to the public and it's likely to save you a great deal of heartaches and headaches if you listen. Being stubborn and thinking you know it all because you've been riding since you were five years old does nothing constructive for your business.
What does the above have to do with the Internal Revenue Service? If you're audited (been there, done that) and all your records are in order, they will still be looking for your intent or lack thereof. When you can show how much research and thought you put into your decision to go into business, you're that much closer to surviving that audit unscathed without losing your shirt...or your business.
If after reading this you still are intent on pursuing horses as a vocation and hanging out your shingle, or starting a breeding program, welcome to the club! Truly the most satisfying thing in the world is to create something yourself and build it into a success. I wouldn't trade it for anything on this Earth!