Many business owners aren’t aware of many deductions that are available to them and end up paying taxes that otherwise could have been avoided. 26 U.S. Code § 162 allows business owners to deduct “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business .” The phrase “ordinary and necessary business expenses” is not explicitly defined in the Internal Revenue Code, and what is “ordinary and necessary” is relative to each industry. For example, an ordinary and necessary business expense for a stable obviously differs from what is an ordinary and necessary business expense for an attorney.
Generally speaking, an “ordinary expense” is one that is common and acceptable in your trade or business (meaning, others in your line of work would also incur these expenses), and a “necessary expense” is one that is helpful and appropriate (but need not be indispensable). In other words, an expense is generally deductible if it was incurred on account of your business and is not deductible if you would have had the expense even without your business.
The following is a list of ordinary and necessary expenses that generally apply to horse-related businesses:
Administrative Expenses
Accounting and bookkeeping fees
Advertising and promotion
Bank service charges
Business licenses and dues
Computers and software
Legal fees
Liability and other business insurance
Postage and delivery fees
Printing and copying
Property and excise taxes
Telephone and utilities
Business travel
Airfar
Automobile expenses – either standard mileage rate or percentage of business auto expenses (payments, insurance, fuel, repairs, etc.)
Railway and bus tickets
Car rentals
Hotels
Meals (50% is deductible)
Parking
Taxis
Tolls
Employees, Contractors, and Consultants
Contract labor fees, expenses, and benefits
Employee pensions and benefit programs
Employee wages
Payroll taxes (employer portion)
Workers compensation insurance
General Expenses
Books, magazines, and videos required for your business
Business entertainment (50% is deductible)
Business gifts (up to $25 per person, per year, is deductible)
Business meals (50% is deductible)
Continuing education seminars and conferences
Depreciation on business equipment and vehicles
Furniture and equipment purchases and rentals
Interest on equipment loans
Interest on farm loans
Mortgage interest
Office supplies
Real property purchases and rentals
Repair and maintenance costs
Horse-Related Business Expenses
Barn and stable supplies
Breeding fees
Broodmare leases
Equine therapy
Farrier fees
Horse feed and shavings
Trade organization member fees
Trailering horses
Training horses for shows or for sale
Veterinary fees
Work clothing such as riding breeches, boots and helmets (includes fitting and laundering)
This list is not inclusive – to learn more, see IRS Publication 535, Business Expenses.
Keep in mind that for any of these items to be deductible, your expense must be substantiated with proper documentation. Also note that if your business is categorized by the IRS as a hobby, your ability to deduct these expenses will be severely limited.
In our next post, we will cover the tax treatment of buying, selling, and trading horses.
* The information contained in this blog should not be used as a substitute for a consultation with your equine accountant and/or tax attorney.