| I am of the opinion that if you are breeding, | | | | You must capitalize rather than deduct some |
| training or boarding horses that you should be a | | | | costs. These costs are part of your investment in |
| business. That does not mean that you can't have | | | | your business. There are three types of costs |
| a not-for-profit business such as training horses in | | | | that you capitalize: |
| your spare time, boarding horses in your empty | | | | 1. Going into business, |
| stalls, or breeding mares or stallions each year. | | | | 2. Business assets, and M |
| But if you have a not-for-profit business, you | | | | 3. Improvements to an asset. |
| may not be able to take all the expenses you | | | | The cost of any asset (land, buildings, trucks, |
| have incurred off your gross income. | | | | trailers, machinery) is a capital expense. The costs |
| According to IRS guidelines, you may take | | | | of making improvements to an asset are capital |
| deductions in the following order but only to the | | | | expenses if they add value to the asset. If you |
| extent stated and only if you itemize them on | | | | repair an asset to prevent further deterioration |
| Schedule A. | | | | that is a deductible expense that can be taken in |
| 1. Deductions you can take for personal as well as | | | | the year the repair was done. |
| for business activities are allowed in full. In this | | | | You cannot generally take a current deduction for |
| category are home mortgage interest, taxes, and | | | | a capital expense. You may take deductions for |
| casualty losses. | | | | the amount you spend through depreciation, |
| 2. Deductions that do not result in an adjustment | | | | amortization or depletion. In doing so, you are able |
| to the basis of property but only to the extent | | | | to deduct part of your cost each year or a |
| your gross income from the business activity is | | | | period of years recovering your capital expense. |
| greater than the deduction you take or could | | | | Capital expenses are recovered by using the |
| take. These include are advertising, utilities, | | | | straight-line method (same amount is used each |
| insurance premiums, interest, etc. | | | | year) over 60 months. This is not the same as |
| 3. Last are business deductions that decrease the | | | | MARCS system that we use to depreciate items |
| basis of property but only to the extent that | | | | that we have mentioned before. In MARCS, the |
| your gross income is more than you have used in | | | | item is depreciated rapidly in the first few years |
| the first two categories. In this area are | | | | and then more slowly over the rest of the useful |
| deprecation, amortization, etc. | | | | life of the item. |
| You can not use losses from a not-for-profit | | | | If you are a business entity, you may deduct |
| activity to offset other income. And to be on the | | | | non-collectible debts from your gross profit as an |
| fair side, you must report all income on your | | | | expense. If a boarder does not pay a boarding bill |
| 1040. If you operate your business as a for-profit | | | | and you have to collect the money due by selling |
| entity, you can do much more to preserve your | | | | the horse at auction and the horse sells for less |
| assets. You can take depreciation, expense | | | | than what is owed, you can deduct the balance |
| ordinary and necessary expenses of your | | | | as a bad debt expense. A not-for-profit business |
| business, amortize your start-up costs or if you | | | | will not be able to do that, as it is a level 3 |
| buy an existing business, you can amortize the | | | | expense. |
| blue sky (goodwill, customer base, etc.) that was | | | | If you are a business entity (sole proprietorship, |
| included. | | | | partnership, S corporation or LLC), you may be |
| If your attempt to go into business is | | | | able to reduce the tax liability of other income |
| unsuccessful and you are a not-for-profit entity, | | | | because you pass through losses from your |
| your costs you had before making a decision to | | | | business activity to your personal (1040) return. |
| start a specific business are nondeductible. The | | | | You should research all the costs, expenses, |
| costs you had in beginning a new business are | | | | market potential and customer base before |
| treated as capital expenses and you can deduct | | | | starting a business of any kind, whether it be for |
| them as capital losses. | | | | profit or non-profit. You may decide that your |
| If you are a corporation and your attempts to | | | | part-time project should be a business for several |
| start a new business fail, you may be able to | | | | reasons. Amount of expense to operate the |
| deduct all costs associated with start-up as a loss. | | | | business and the income potential may make it |
| These include research into the business you are | | | | necessary to be able to take advantage of |
| starting, marketing, employee's wages, etc. | | | | depreciation, expensing and depletion. |
| You are allowed to deduct all expenses that are | | | | You should consult with your accountant or CPA |
| common and accepted for your business. You | | | | about how your business should be structured and |
| may, also, deduct expenses that are helpful and | | | | whether it should be non-profit or profit. Careful |
| appropriate for your business. An expense does | | | | planning at the beginning will reduce the stress of |
| not have to be indispensable to be considered | | | | the 2 in 7 rule and the possibility of a hobby or |
| necessary to your business. | | | | business audit. |