My belief is that if you run a business properly and have competent counsel, the tricks of the trade and opportunities for tax savings are things that are best discussed on a case-by-case basis with your accountant. There is no one size fits all answer. I have no secret formula to pay little or no taxes, however I can provide some tips here to keep your business running more smoothly and with fewer tax-related crises.
Tip #1 Taxes are not a do-it-yourself project. Selecting an accountant should be a careful process. It should never be based on the size of a refund or how fast you will get your money back. You should ask if they are a CPA (state licensed) or an enrolled agent (licensed by the IRS).
Tip #2 The IRS agents like to say if it isn't in writing, it never happened. Good record keeping is a must for any business. I suggest you pay for as many expenses as you can with a debit or credit card so you have some trail of where you spent your money even if you lose receipts. Cash is the absolute worst way to pay for expenses.
Tip #3 Deposit 100% of your income and make sure income deposited equals income reported on the top line of your tax return. Virtually every IRS fraud case involves unreported income. If you follow what I stated above you will very likely never be investigated for tax fraud provided your expenses are reasonable for the type of business you are engaged in. Remember there is rarely a valid excuse for "forgetting" any appreciable amount of income
Tip #4 In general ask your tax advisor about claiming the standard mileage rate for auto expenses unless you drive less than 15,000 business miles a year or have a compelling need for a very expensive vehicle. I have found the convenience of the mileage rate method and the reduced record keeping that accompanies it saves my clients considerable time and money. The issue here is how much burden do you want in keeping gas receipts and other records related to auto maintenance.
Tip #5 I recommend routinely filing extensions on March 1st if you have not already filed your returns by that date. This protects you in the event of sickness, injury, floods, fires, etc. You are thus allowed until October 15 to file. It takes five minutes, and it's free. You have to pay any tax due by April 15, but you will save needless penalties for late filing by getting a preventative extension "just in case".
Tip #6 Most horse businesses cannot claim bad debts. If you never reported income, you cannot claim income you never reported as a bad debt. In other words if owner Jones fails to pay your training bill, it's bad luck; take him or her to court, but the IRS will not feel your pain.
Tip #7 If you lose 1099's you received during the year and you absolutely cannot get them from the payer, wait until August to file and ask the IRS for a wage and income statement. I have clients who show up with no records for many years. I often use IRS records to help reconstruct income where records have been lost.
Tip #8 Don't hand your tax preparer unopened envelopes. We aren't psychics, and it's a great time waster. I often drop my fee up to 20% if a client is very well organized and has good records that are well organized.
Tip #9 Many horsepersons tell me they cannot afford health insurance. The reality is you cannot afford not to have health insurance. It's tax deductible and in some cases subsidized under the Affordable Health Care Act. There are now penalties for not having health insurance as well. Medical expenses cause more bankruptcies than any other reason. I cannot emphasize enough how I feel about this topic.
Tip #10 Be sure that you have a business plan. Again, not only is this essential for you as a business owner to plan how you will run your business and to forecast your expenses and income, but it also tells the IRS that you are putting the effort and planning into a true business and not a just a hobby.
Larry Rosenblum, E.A., MBA, is an enrolled agent and president of The Equine Tax Group a national tax firm specializing in representing the horseperson before the IRS and State tax departments. Rosenblum retired from the IRS after a 33-year career, which saw him involved in numerous cases involving the equine industry. He can be reached at (888) 338-3999 or equinetaxgroup.com.