Recently Harnesslink editor Steve Wolf sat down with Larry Rosenblum, President of the Equine Tax Group and asked him what tips he could offer horsepersons for the upcoming tax season, Rosenblum had the following to say.
“My belief as an experienced accountant in horse related business 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 between you and 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 your readers with 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 in my opinion. 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). If they are neither then Caveat Emptor.”
Tip #2
“IRS Agents like to say if it isn’t in writing it never happened. Record keeping is a must for any business and it is no less important in the horse 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
“I encourage everyone to 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 just 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. By the way do not try using a check cashing service. They report every check they cash right to the IRS.”
Tip #4
“In general ask your tax advisor about claiming the standard mileage rate for auto expenses unless you drive under 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 filing extensions on March 15th. This protects you in the event of sickness, injury, floods, fires, etc. Thus if you can’t file for some reason by the 15th of April. You are thus allowed until October 15th to file. It takes 5 minutes and it’s free. You have to pay any tax due by April 15th, but you will save needless penalties for late filing by getting a preventative extension “just in case.”
Larry Rosenblum added, “If people follow these simple steps they will avoid 80 percent of the problems people run into as far as taxes are concerned. All too often horse persons do not take taxes seriously and invariably it gets them in trouble. They fail to realize that of each dollar they take in almost 40-45% if probably going to be needed to pay taxes.
There is an illusion that drivers and trainers are making big money when in fact all but the very top competitors in the sport are earning middle class incomes.”
Owners on the other hand need to be cognizant of the “hobby loss rules” which we discuss thoroughly on our website at www.equinetaxgroup.com."
On a final note, Larry wanted everyone to know that “The horse industry has long been a favorite target of the IRS so do not become a victim because of your failing to use due diligence!”
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 888-338-2999 or equinetaxgroup.com.
By Steve Wolf, for Harnesslink.com