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Re: [RC] [RC] [RC] Increasing Income - Ridecamp Guest - Cordell Rogers - Cordell RogersLucinda, Thanks for the email. I am including it here to make the discussion public. True, most auditors- like most americans- do not understand the horse industry. The IRS prepared this publication to assist its auditors in understanding the horse industry: http://www.irs.gov/businesses/page/0,,id%3D6979,00.html#Chap6 What you're saying sounds like the old joke: Q: How do you end up with a small fortune with horses? A: Start with a large fortune. The IRS has to use a reasonable approach to determine if an activity is a business or a hobby. The difference is defined by profit motive. The easiest way to prove that you have a profit motive is by making a profit. It is perfectly reasonable to expect that a legitimate business may lose money some years; however, it should turn a profit at least once every few years. If it never makes a profit but instead loses money year after year, any logical business owner would abandon the business or make significant changes to increase profitability. If this doesn't happen, any reasonable person would conclude that the taxpayer does not have a profit motive. Therefore, his motive for keeping horses must be something else, like recreation or hobby. By law, the expenses related to a hobby cannot create a loss - they can merely offset income generated by the hobby. Most illegitimate horse operations want to deduct expenses and not report income (if there is any income). Therefore, if you want to avoid scrutiny - make money with your horses or if you're not doing it for the money, don't deduct the expenses. Yes, you have a right to operate a business & more power to you if you enjoy your work. Where people get in trouble is going beyond that right and trying to get me & you to subsidize their hobbies by claiming expenses that are not related to a legitimate business. Cordell --- Lucinda Carpe <kharakterc@xxxxxxxxx> wrote: Dear Mr. Rogers, Even someone with a legitimate profit motive would have a hard time making money in the horse business. Lets all remember that it takes a large amount of money to make a small amount of money in the horse business. However, it should not discourage the small breeder..and I think that the horse business is unfairly scrutinized by the IRS and most IRS agents do not understand the horse business or horses at all. do not understand that horses are pregnant for one year. you get one foal a year it takes time to make that profit etc....while I am not a CPA I do understand the horse business. While I have limited finances to invest in my business it is a business. I have a right to operate a business and yes enjoy it as well./Lucinda Cordell Rogers <cordell_rogers@xxxxxxxxx> wrote: Kathy- I am a CPA and believe that your advice is not sound regarding taxes. Some of your advice is simply bad financial advice (like spending dollars to save quarters) and other parts would be considered fraudulent. Horse owners historically have abused the tax laws by trying to get Uncle Sam to finance their hobby by claiming invalid deductions. That is why any loss related to horse 'businesses' are scrutinized so carefully by the IRS. Most horse operations are not businesses as defined by the tax code and do not operate with a profit motive. See the IRS article 'Is it a Business or a Hobby?' for more info before you decide to 'write off' all your horse expenses. http://www.irs.gov/businesses/small/article/0,,id=99239,00.html Cordell Rogers Re: [RC] Increasing Income - Ridecamp Guest -------------------------------------------------------------------------------- Please Reply to: Kathy Myers magnumsmom@xxxxxxx or ridecamp@xxxxxxxxxxxxx ========================================== Bruce, What a great email and inspiration. I've got a dozen bananas in my truck. ;-) I hope this isn't too late, as I've been working solid and I've fallen way behind on being able to keep up with Ridecamp. However, I like where you are going with this thread. We moved to NM without a job at the height of the dot commie crash. We knew that we needed to be like a farmer... more than one income stream... so that if the "pecans" failed one year, we would still have a "corn" and / or a "bean" crop. We still work in that direction. No matter where we are at, we are always looking for the next opportunity so we could be ready in case we needed it. A job is never a job until you start the first day... or maybe when the first paycheck arrives. Having two irons in the fire has saved me more than once in the last 4 years. Another thing we do: maximize our tax deductions and use a good accountant. If you own a home, it's a lot more in your pocket than just the equity. The payments are a write off. If you can, refinance every debt that is not tax deductable under a 2nd on your home. The payments usually decrease (though you pay over a longer time) and free up more cash now. Don't count out inflation. $300 / month in 10 years is only worth $150 - $200 in today's buying power. We call a 6% mortgage rate "free money" because for the most part, the house will appreciate at or faster than 6%. The cost of a good accountant is also a tax write off. We moved someplace where we could keep our horses at home. That way all of the money I used to spend on board is now going into my house payment. Note: board is not tax deductable, but the house payment is. Therefore, I actually get more for my money (15 - 38% depending on the tax bracket) than I did when we had to board. Here's an interesting one: Buy a LQ trailer with a potty and a stove on a 15 year loan. Why? Because it qualifies as a second home (vacation home) and the payments (interest pretty much for the first 7 years) are a tax write off. You wonder how people buy those things? They get the write off. I haven't done this, but we have thought about it. Start some kind of an endurance or horse related business, then you can write off part of your horse expenses. Look at what you are paying in taxes every year and see if you can get some of that back to pay every day expenses. Bruce could get qualified to work on horses and write off expenses for going to rides... say, if he also works on horses. He will of course need to have his own horses at home to practice on. It's not increasing your bottom line, but it is using the money you make to the max. If you only want to work a service job, look for one with benefits... ie, Starbucks or Kinko's. Use Monster, Dice, and CareerBuilder. See what is going on out there in the market place. The job market is still iffy, and don't risk a good thing, but if you are luke warm about your job, check to see what's going on. I've had job search engines running for years just to keep an eye on the market in my profession. BTW, if you send resumes out, make sure to follow up with a phone call or email. These companies are now getting tons of electronic resumes. I hate doing this, but it really is necessary. I keep tabs on side contracts even though I now have a good full time job. I will work nights / weekends and use that money to buy horse things and pay for rides. There is less time to train when I work 2 jobs, but I don't have to ride fast. We can still go and have a great day. I do a lot of job related networking and keep up with those contacts. I also network between job opportunities and good people who need work so everyone wins. In CA, I used to do this for the finders fee. In NM for the most part I do it so that when I need an extra side job (read vet bill) I have a network of people who are willing to help me too. One last idea for increasing income. "Find" a ram. The ram just happens to be the Zuni fetish for prosperity... :) - Kathy Myers in Santa Fe, NM "just working 2 jobs these days..." __________________________________ Yahoo! Mail - PC Magazine Editors' Choice 2005 http://mail.yahoo.com =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= Ridecamp is a service of Endurance Net, http://www.endurance.net. 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