This comment appears in KJEANRL Vol. 1 No. 1 and was written by comments editor Anna Garcia. The abstract was written by staff member Sunni Harris.
Professionals in the equine industry are prone to having their horse-based activities classified as “hobbies” by the IRS. Examples of activities that are considered hobbies by the IRS include, but are not limited to: racing, showing, boarding, and breeding horses. Often professionals in the equine industry utilize these same activities to promote their equine businesses. The equine professional taxpayer suffers non-deductible losses when horse-based activities relating to his or her business are classified as hobbies instead of what they really are: business pursuits. Mrs. Garcia’s comment advises equine professionals on how to avoid hobby loss challenges.
In order for an equine professional to avoid a hobby loss challenge, he or she must prove that the activities the IRS classifies as “hobbies” are in reality business activities. The best way to convince the IRS that horse-based activities are business related is by aggregating the activities together, showing that they are sufficiently interconnected to be considered a single activity. When hoping to avoid a hobby loss by claiming a “single activity,” taxpayers should: (1) develop a written business plan integrating the various business activities, (2) keep and consolidate the records and books of multiple activities, (3) utilize services of the same manager and CPA for all activities, (4) use the same assets for both businesses, (5) file a single Schedule C form for sufficiently related business and hobby activities, (6) employ conventional advertising, unless the industry custom creates an exception, and (7) create “goodwill” by participating in and actually winning public competitions related to the hobby. By employing the aforementioned advice, the taxpayer is often able to show the organizational and economic relationship of their activities, thus improving the taxpayers chance of winning against the IRS.
Professionals in the equine industry are prone to having their horse-based activities classified as “hobbies” by the IRS. Examples of activities that are considered hobbies by the IRS include, but are not limited to: racing, showing, boarding, and breeding horses. Often professionals in the equine industry utilize these same activities to promote their equine businesses. The equine professional taxpayer suffers non-deductible losses when horse-based activities relating to his or her business are classified as hobbies instead of what they really are: business pursuits. Mrs. Garcia’s comment advises equine professionals on how to avoid hobby loss challenges.
In order for an equine professional to avoid a hobby loss challenge, he or she must prove that the activities the IRS classifies as “hobbies” are in reality business activities. The best way to convince the IRS that horse-based activities are business related is by aggregating the activities together, showing that they are sufficiently interconnected to be considered a single activity. When hoping to avoid a hobby loss by claiming a “single activity,” taxpayers should: (1) develop a written business plan integrating the various business activities, (2) keep and consolidate the records and books of multiple activities, (3) utilize services of the same manager and CPA for all activities, (4) use the same assets for both businesses, (5) file a single Schedule C form for sufficiently related business and hobby activities, (6) employ conventional advertising, unless the industry custom creates an exception, and (7) create “goodwill” by participating in and actually winning public competitions related to the hobby. By employing the aforementioned advice, the taxpayer is often able to show the organizational and economic relationship of their activities, thus improving the taxpayers chance of winning against the IRS.