Dr. Saundra TenBroeck, UF/IFAS Extension Horse Specialist
Most would agree that involvement with horses and the horse industry requires significant investment. If the intent of a horse enterprise is to generate a net gain in revenue, then it may be recognized as a business by the IRS. Operating as an agricultural enterprise provides quite a few benefits. Because horses are classified by USDA as livestock, horse breeders can enjoy some of the same benefits as other livestock producers engaged in agricultural production enterprises.
Benefits from having a Livestock Business
There are several Ag Sales Tax Exemptions including things like direct sale of offspring produced by your mares, biologicals (fertilizers, insecticides, fungicides, pesticides), fuel used for ag purposes, and feed.
Expenses related to the equine enterprise can be deducted from income generated by your horse enterprise in calculating your Federal Income Tax. In addition to writing off losses against income earned, you may also be eligible for “green belt” property tax exemption, so that the millage rate for property taxes is assessed at agriculture production rates.
Another positive of being classified as involved in “production agriculture” is that you are eligible to gain “presumption of compliance” with the Clean Water Act, if you have implemented BMP’s on your property and have filed a Notice of Intent to Implement with the Florida Department of Agriculture.
Finally, being in production agriculture brings you into the fold protected by the Florida Right to Farm Act.
Not everything we do with horses can be considered an ag business. The fundamental principle is “intention to make a profit”. Some examples of horse businesses include: Breeding horses and marketing offspring; Boarding horses; Riding/training horses; Selling hay or feed; Farrier services ; and Hauling horses for other people (new laws).
Business or Hobby? Federal IRS Income Tax Code – Section 183 “Hobby Law”
The IRS will make a determination about your business by looking at 10 factors:
- Operation of activity in business-like manner – Business plan, complete & accurate records, maintain separate checking account
- Expertise – Did you take the time/effort to become expert, Did you employ experts to advise you
- Time and effort devoted to the activity, Devote substantial personal time/effort, Employ qualified persons (but YOU manage)
- Expectation that assets may appreciate, Horses, facilities may gain value to offset loss
- Past success in similar or dissimilar activities
- History of income and losses – IRS doesn’t believe that someone who continually loses $$$ will stay in business long
- Amounts of occasional profits – Why was there a profit? All expenses/income reported? Was there an unusual sale?
- Taxpayer’s financial status – Do you have substantial income from sources unrelated to the horse activity?
- Elements of personal pleasure or recreation – You might enjoy working with horses, but you must still be engaging in the activity for profit
- Anything else the IRS wants!
If you determine that your enterprise is actually a hobby, you can still deduct losses from your hobby, but only against profits (income) that are generated from your hobby.
- Can’t deduct hobby expenses from any other income that is unrelated to the hobby
- Hobby expenses are considered “personal”
The less formal the form of ownership, the more likely the IRS will scrutinize the business to see if it’s really a business.
Take home message:
Know what benefits are available to agricultural businesses. Keep excellent records. Take time to evaluate your enterprise to make better management decisions. Seek help from qualified tax consultants and insurance agents. Select experts that have familiarity with horse industry.
For more information on this subject, use the following links:
- Management Strategies to Prevent Seasonal Impaction Colic in Horses - October 27, 2023
- Respond to the 2023 American Horse Council Economic Impact Study Survey - February 17, 2023
- Cool-Season Fly Pests of Horses - December 16, 2022