the importance of the equine accountant€¦ · in your favor. have a business plan, talk to people...
TRANSCRIPT
The Importance of the Equine Accountant
Larry Rosenblum, EA, MBA The Equine Tax Group FL, INC.
EQUINE VS. TRADITIONAL ACCOUNTANTS
� Industry Trends.Industry Trends.Industry Trends.Industry Trends.
� Cost of goods.Cost of goods.Cost of goods.Cost of goods.
� Competition (New chain stores entering Competition (New chain stores entering Competition (New chain stores entering Competition (New chain stores entering
market).market).market).market).
� Financing.Financing.Financing.Financing.
� Banking relationships.Banking relationships.Banking relationships.Banking relationships.
HORSES ARE A WAY OF LIFE
� Equine Accountants know the horse business.Equine Accountants know the horse business.Equine Accountants know the horse business.Equine Accountants know the horse business.
� They can answer localized questions.They can answer localized questions.They can answer localized questions.They can answer localized questions.
� Identify known needs of the business.Identify known needs of the business.Identify known needs of the business.Identify known needs of the business.
� Terminology is knownTerminology is knownTerminology is knownTerminology is known----eliminating the learning eliminating the learning eliminating the learning eliminating the learning
curvecurvecurvecurve
� Knowledge of the various breeds.Knowledge of the various breeds.Knowledge of the various breeds.Knowledge of the various breeds.
� Trade associations.Trade associations.Trade associations.Trade associations.
WHAT MIGHT AN EQUINE ACCOUNTANT DO?
� Bookkeeping.Bookkeeping.Bookkeeping.Bookkeeping.
� Business Plans.Business Plans.Business Plans.Business Plans.
� Structuring Structuring Structuring Structuring transactions to avoid or minimize sales and use transactions to avoid or minimize sales and use transactions to avoid or minimize sales and use transactions to avoid or minimize sales and use taxes.taxes.taxes.taxes.
� Help with the hobby loss and passive activity rules.Help with the hobby loss and passive activity rules.Help with the hobby loss and passive activity rules.Help with the hobby loss and passive activity rules.
� Helping Helping Helping Helping foreign owners and breeders to minimize exposure to foreign owners and breeders to minimize exposure to foreign owners and breeders to minimize exposure to foreign owners and breeders to minimize exposure to U.S. taxes and comply with filing U.S. taxes and comply with filing U.S. taxes and comply with filing U.S. taxes and comply with filing requirements.requirements.requirements.requirements.
� Taking Taking Taking Taking advantage of unique tax depreciation advantage of unique tax depreciation advantage of unique tax depreciation advantage of unique tax depreciation rules (Discussion).rules (Discussion).rules (Discussion).rules (Discussion).
� Representing clients with federal and state tax Representing clients with federal and state tax Representing clients with federal and state tax Representing clients with federal and state tax audits.audits.audits.audits.
� Discussion).Discussion).Discussion).Discussion).
� Payroll Tax issues under the table workers are unacceptable Payroll Tax issues under the table workers are unacceptable Payroll Tax issues under the table workers are unacceptable Payroll Tax issues under the table workers are unacceptable (Discussion).(Discussion).(Discussion).(Discussion).
SELECTING THE CORRECT BUSINESS STRUCTURE
Your equine accountant can explain the Your equine accountant can explain the Your equine accountant can explain the Your equine accountant can explain the
advantages of each.advantages of each.advantages of each.advantages of each.
� Sole proprietorships.Sole proprietorships.Sole proprietorships.Sole proprietorships.
� Partnerships.Partnerships.Partnerships.Partnerships.
� S Corporations.S Corporations.S Corporations.S Corporations.
� LLC.LLC.LLC.LLC.
� C Corporations.C Corporations.C Corporations.C Corporations.
THE HOBBY LOSS RULES-IRC 183
� There are nine factors to be considered in There are nine factors to be considered in There are nine factors to be considered in There are nine factors to be considered in
evaluating an activity in terms of an activity evaluating an activity in terms of an activity evaluating an activity in terms of an activity evaluating an activity in terms of an activity
entered into for profit.entered into for profit.entered into for profit.entered into for profit.
� The Internal Revenue Service will ask a variety The Internal Revenue Service will ask a variety The Internal Revenue Service will ask a variety The Internal Revenue Service will ask a variety
of questions in order to satisfy themselves.of questions in order to satisfy themselves.of questions in order to satisfy themselves.of questions in order to satisfy themselves.
of the correct answer for each question.of the correct answer for each question.of the correct answer for each question.of the correct answer for each question.
� It is best to obtain professional representation It is best to obtain professional representation It is best to obtain professional representation It is best to obtain professional representation
before answering any of these questionsbefore answering any of these questionsbefore answering any of these questionsbefore answering any of these questions.
THE MANNER IS WHICH THE TAXPAYER
CARRIES ON THE ACTIVITY.
� Does the taxpayer complete accurate books?Does the taxpayer complete accurate books?Does the taxpayer complete accurate books?Does the taxpayer complete accurate books?
� WWWWere records used to evaluate performance?ere records used to evaluate performance?ere records used to evaluate performance?ere records used to evaluate performance?
� If performance was poor what did they do?If performance was poor what did they do?If performance was poor what did they do?If performance was poor what did they do?
� Were they content to sit around and lose money?Were they content to sit around and lose money?Were they content to sit around and lose money?Were they content to sit around and lose money?
� Were individuals hired or fired?Were individuals hired or fired?Were individuals hired or fired?Were individuals hired or fired?
� Was the Business Plan amended.?Was the Business Plan amended.?Was the Business Plan amended.?Was the Business Plan amended.?
THE EXPERTISE OF THE TAXPAYER AND HIS
ADVISORS.
� Did the taxpayer possess expertise in the field?Did the taxpayer possess expertise in the field?Did the taxpayer possess expertise in the field?Did the taxpayer possess expertise in the field?
� Show the expertise?Show the expertise?Show the expertise?Show the expertise?
� Did the taxpayer study the activity?Did the taxpayer study the activity?Did the taxpayer study the activity?Did the taxpayer study the activity?
� How? Where? With whom?How? Where? With whom?How? Where? With whom?How? Where? With whom?
� Did they consult with recognized experts?Did they consult with recognized experts?Did they consult with recognized experts?Did they consult with recognized experts?
� Document!!!! Document!!!! Document!!!!Document!!!! Document!!!! Document!!!!Document!!!! Document!!!! Document!!!!Document!!!! Document!!!! Document!!!!
THE TIME AND EFFORT EXPENDED BY THE TAXPAYER IN
CARRYING OUT THE TRADE OR BUSINESS
� How many hours per week is the taxpayer How many hours per week is the taxpayer How many hours per week is the taxpayer How many hours per week is the taxpayer
spending on the business. Keep a log of such spending on the business. Keep a log of such spending on the business. Keep a log of such spending on the business. Keep a log of such
activity. Log should show place of activity, who you activity. Log should show place of activity, who you activity. Log should show place of activity, who you activity. Log should show place of activity, who you
spoke to and what specifically you were doing.spoke to and what specifically you were doing.spoke to and what specifically you were doing.spoke to and what specifically you were doing.
� Beware of these activities:Beware of these activities:Beware of these activities:Beware of these activities:
Loading hay or cleaning stalls when your skills set Loading hay or cleaning stalls when your skills set Loading hay or cleaning stalls when your skills set Loading hay or cleaning stalls when your skills set
clearly suggests you have management skills. clearly suggests you have management skills. clearly suggests you have management skills. clearly suggests you have management skills.
Lower level skills tend to result in issues Lower level skills tend to result in issues Lower level skills tend to result in issues Lower level skills tend to result in issues aaaas to s to s to s to
whether you are actually relevant to the operation.whether you are actually relevant to the operation.whether you are actually relevant to the operation.whether you are actually relevant to the operation.
THE EXPECTATION THAT THE ASSETS USED IN
THE ACTIVITY WILL INCREASE IN VALUE
� In many equine activities the key to making money In many equine activities the key to making money In many equine activities the key to making money In many equine activities the key to making money will be selling the horse or breeding rightswill be selling the horse or breeding rightswill be selling the horse or breeding rightswill be selling the horse or breeding rightsor offspring at a profit. If this is the key to your or offspring at a profit. If this is the key to your or offspring at a profit. If this is the key to your or offspring at a profit. If this is the key to your particular operation chances are you will need a particular operation chances are you will need a particular operation chances are you will need a particular operation chances are you will need a Bloodstock Agent to help you with your business Bloodstock Agent to help you with your business Bloodstock Agent to help you with your business Bloodstock Agent to help you with your business plan and to help you in the event of an IRS audit.plan and to help you in the event of an IRS audit.plan and to help you in the event of an IRS audit.plan and to help you in the event of an IRS audit.
� Therefore that person should be assisting you Therefore that person should be assisting you Therefore that person should be assisting you Therefore that person should be assisting you when this question is asked by the IRS Agent.when this question is asked by the IRS Agent.when this question is asked by the IRS Agent.when this question is asked by the IRS Agent.
� I recommend a detailed answer with financial I recommend a detailed answer with financial I recommend a detailed answer with financial I recommend a detailed answer with financial projections by provided.projections by provided.projections by provided.projections by provided.
THE TAXPAYERS HISTORY OF INCOME OR
LOSSES WITH RESPECT TO THE ACTIVITY
� The IRS will do an extended history (10 or more The IRS will do an extended history (10 or more The IRS will do an extended history (10 or more The IRS will do an extended history (10 or more
years) of the businesses history of making or years) of the businesses history of making or years) of the businesses history of making or years) of the businesses history of making or
losing money both before and after allowing for losing money both before and after allowing for losing money both before and after allowing for losing money both before and after allowing for
depreciation. depreciation. depreciation. depreciation.
� It becomes a rather compelling argument when It becomes a rather compelling argument when It becomes a rather compelling argument when It becomes a rather compelling argument when
a business NEVER makes money. Be prepared a business NEVER makes money. Be prepared a business NEVER makes money. Be prepared a business NEVER makes money. Be prepared
to explain why it doesn’t and when and why it to explain why it doesn’t and when and why it to explain why it doesn’t and when and why it to explain why it doesn’t and when and why it
will. Hire an expertwill. Hire an expertwill. Hire an expertwill. Hire an expert---- Do not try this yourself!!!.Do not try this yourself!!!.Do not try this yourself!!!.Do not try this yourself!!!.
THE SUCCESS OR FAILURE OF THE TAXPAYER IN
SIMILAR OR DISSIMILAR ACTIVITIES
� If the taxpayer has done well in a similar If the taxpayer has done well in a similar If the taxpayer has done well in a similar If the taxpayer has done well in a similar
business venture it obviously bodes very well in business venture it obviously bodes very well in business venture it obviously bodes very well in business venture it obviously bodes very well in
his or her favor. his or her favor. his or her favor. his or her favor.
� If they have done well in anything remotely If they have done well in anything remotely If they have done well in anything remotely If they have done well in anything remotely
similar it should also be brought to the surface,similar it should also be brought to the surface,similar it should also be brought to the surface,similar it should also be brought to the surface,
� Even if it doesn’t seem relevant it may help.Even if it doesn’t seem relevant it may help.Even if it doesn’t seem relevant it may help.Even if it doesn’t seem relevant it may help.
Anything entrepreneurial usually is beneficial.Anything entrepreneurial usually is beneficial.Anything entrepreneurial usually is beneficial.Anything entrepreneurial usually is beneficial.
THE FINANCIAL STATUS OF THE TAXPAYER
� If the taxpayer is wealthy the IRS will often claimIf the taxpayer is wealthy the IRS will often claimIf the taxpayer is wealthy the IRS will often claimIf the taxpayer is wealthy the IRS will often claimthe whole activity is just for fun (hobby).the whole activity is just for fun (hobby).the whole activity is just for fun (hobby).the whole activity is just for fun (hobby).
� You can afford to lose money and it does not You can afford to lose money and it does not You can afford to lose money and it does not You can afford to lose money and it does not matter whether the business makes money or not. matter whether the business makes money or not. matter whether the business makes money or not. matter whether the business makes money or not. I highly recommend the taxpayer employ an expert I highly recommend the taxpayer employ an expert I highly recommend the taxpayer employ an expert I highly recommend the taxpayer employ an expert equine accountant or attorney experienced in this equine accountant or attorney experienced in this equine accountant or attorney experienced in this equine accountant or attorney experienced in this issue who can easily negate this absurd claim by issue who can easily negate this absurd claim by issue who can easily negate this absurd claim by issue who can easily negate this absurd claim by the IRS.the IRS.the IRS.the IRS.
� No intelligent person enjoys losing money No intelligent person enjoys losing money No intelligent person enjoys losing money No intelligent person enjoys losing money endlessly.endlessly.endlessly.endlessly.
� Do not allow this to happen or to be tagged on you.Do not allow this to happen or to be tagged on you.Do not allow this to happen or to be tagged on you.Do not allow this to happen or to be tagged on you.
DOES THE ACTIVITY LACK ELEMENTS OF
PERSONAL PLEASURE OR RECREATION?
� The IRS might try to link your past experience The IRS might try to link your past experience The IRS might try to link your past experience The IRS might try to link your past experience with horses as proof that you “love” horses and with horses as proof that you “love” horses and with horses as proof that you “love” horses and with horses as proof that you “love” horses and that is that is that is that is wwwwhy you chose a horse related business.hy you chose a horse related business.hy you chose a horse related business.hy you chose a horse related business.
� You must have a solid business plan, and not You must have a solid business plan, and not You must have a solid business plan, and not You must have a solid business plan, and not ride your assets (horses) recreationally for this ride your assets (horses) recreationally for this ride your assets (horses) recreationally for this ride your assets (horses) recreationally for this factor to come out in your favor. factor to come out in your favor. factor to come out in your favor. factor to come out in your favor.
� If your business involves racing and your family If your business involves racing and your family If your business involves racing and your family If your business involves racing and your family goes out to watch your horse race this is often goes out to watch your horse race this is often goes out to watch your horse race this is often goes out to watch your horse race this is often “scored” against you.“scored” against you.“scored” against you.“scored” against you.
AUDIT SURVIVAL PLAN
� No one factor is determinative but because factors 4 No one factor is determinative but because factors 4 No one factor is determinative but because factors 4 No one factor is determinative but because factors 4 thru 9 are largely out of your control…thru 9 are largely out of your control…thru 9 are largely out of your control…thru 9 are largely out of your control…
� You should make sure factors 1 thru 3 are very solidly You should make sure factors 1 thru 3 are very solidly You should make sure factors 1 thru 3 are very solidly You should make sure factors 1 thru 3 are very solidly in your favor. Have a business plan, Talk to people in your favor. Have a business plan, Talk to people in your favor. Have a business plan, Talk to people in your favor. Have a business plan, Talk to people smarter than yourself. Work hard.smarter than yourself. Work hard.smarter than yourself. Work hard.smarter than yourself. Work hard.
� Don’t post embarrassing or childish things on Don’t post embarrassing or childish things on Don’t post embarrassing or childish things on Don’t post embarrassing or childish things on Facebook or LinkedIn about your business!!!!. Don’t Facebook or LinkedIn about your business!!!!. Don’t Facebook or LinkedIn about your business!!!!. Don’t Facebook or LinkedIn about your business!!!!. Don’t allow irrelevant or silly comments on social media. allow irrelevant or silly comments on social media. allow irrelevant or silly comments on social media. allow irrelevant or silly comments on social media.
� Discussion of social media. What not to say!!!Discussion of social media. What not to say!!!Discussion of social media. What not to say!!!Discussion of social media. What not to say!!!
� Current trend of stolen horses and equipmentCurrent trend of stolen horses and equipmentCurrent trend of stolen horses and equipmentCurrent trend of stolen horses and equipment.
PASSIVE ACTIVITY LOSSES
� Another Another Another Another hurdle the horse business owner faces is that they must prove they hurdle the horse business owner faces is that they must prove they hurdle the horse business owner faces is that they must prove they hurdle the horse business owner faces is that they must prove they spend 500 of more hours working in the business each year. (Material spend 500 of more hours working in the business each year. (Material spend 500 of more hours working in the business each year. (Material spend 500 of more hours working in the business each year. (Material Participation Rule)Participation Rule)Participation Rule)Participation Rule)
� They are required to keep a contemporaneous log in generalThey are required to keep a contemporaneous log in generalThey are required to keep a contemporaneous log in generalThey are required to keep a contemporaneous log in general, , , , RRRRecently ecently ecently ecently there there there there have been cases that have challenged this rule.have been cases that have challenged this rule.have been cases that have challenged this rule.have been cases that have challenged this rule.
� The IRS likes to argue that your time is investor time,The IRS likes to argue that your time is investor time,The IRS likes to argue that your time is investor time,The IRS likes to argue that your time is investor time,
or or or or not meaningful time without explaining why they have made this not meaningful time without explaining why they have made this not meaningful time without explaining why they have made this not meaningful time without explaining why they have made this
decision.decision.decision.decision.
� Should this issue be raised by an agent contact an experienced Equine Should this issue be raised by an agent contact an experienced Equine Should this issue be raised by an agent contact an experienced Equine Should this issue be raised by an agent contact an experienced Equine Attorney or Accountant.Attorney or Accountant.Attorney or Accountant.Attorney or Accountant.
� The benchmark case for this issue is a recent case The benchmark case for this issue is a recent case The benchmark case for this issue is a recent case The benchmark case for this issue is a recent case Tolin vs. CommissionerTolin vs. CommissionerTolin vs. CommissionerTolin vs. Commissioner....
(Discussion)(Discussion)(Discussion)(Discussion)
SAMPLE ACTIVITY LOG FOR A FEW DAYS
Day Activity Location Hours Comments Notes
!0/10 Training Farm-Stga 8 Trained 2 yr olds Trainer E. Smith
!0/11 Races Stga 4 Race 4 Post 4 Finished 3rd spoke to vet R Jones
10/12 Rutgers Seminar NJ 8 Farm Seminar
CONCLUSION
The survivaThe survivaThe survivaThe survivallll of your horse business during an IRS of your horse business during an IRS of your horse business during an IRS of your horse business during an IRS
audit challenge dependsaudit challenge dependsaudit challenge dependsaudit challenge depends
on proper representationon proper representationon proper representationon proper representation
by an Equine Accountant.by an Equine Accountant.by an Equine Accountant.by an Equine Accountant.
Questions? Questions? Questions? Questions?
Contact Contact Contact Contact Larry RosenblumLarry RosenblumLarry RosenblumLarry Rosenblum
Phone: 844.777.7200 Phone: 844.777.7200 Phone: 844.777.7200 Phone: 844.777.7200
WWW.EquineTaxGroup.comWWW.EquineTaxGroup.comWWW.EquineTaxGroup.comWWW.EquineTaxGroup.com