Is your horse operation a business or a hobby? The easiest way to determine whether your operation is a hobby or a business is to start with a few fundamental questions:
- What is your product or service?
- Define what you are selling, what will generate income, how many products you are capable of having, and what makes your product special.
- Who are your clients?
- Determine who your possible clients are. What is their gender, their ages, hobbies, lifestyles, and levels of education?
- Research what your competition is doing
- Where is your business location?
- Will profits outweigh losses?
- Why are you positioned for success in this market?
- What are your skills, personal preferences, income levels?
Every business's intent is to make some form of a profit. The intent of a horse business is to gain revenue from a horse interest, which can include:
- Boarding horses
- Riding/training a horse
- Reselling hay
- Selling feed
- Farrier services and shoeing horses
- Hauling horses to shows for other people, etc.
All businesses must carry out all activities in a businesslike manner from bookkeeping, to management, to budgeting. Any successful business owner needs to remember to:
- Keep all records and accounts separate for business and personal pursuits
- Stay well organized and have complete accurate records
- Get certifications to make you more capable or recognized in your abilities
- Examples: American Riding Instructors Association (ARIA), Certified Horsemanship Association, etc.
- Keep records of all financial statements, catastrophic circumstances, and natural disasters
- Have a business calendar to stay on top of bills and events
- Create a business plan to set goals for your business and keep it growing
- The business plan may contain the following:
- Table of Contents
- History, description, market and marketing plan, competition, operations, management, research and development, personnel, loan application and effects, development schedule, and financial plan
- Statement of Purpose
- Executive Summary
To read more about business plans, click here.
Doing these things will help avoid challenges with the Internal Revenue Service. Some other things that will help avoid trouble with the IRS are remembering to spend adequate time and money on the business, document excessive losses, and get expert consultation when needed.
Other IRS rules beneficial to an equine business:
- For a horse business, the IRS states you should have a profit two out of seven years.
- Hobby Loss Rule Limitations: You can only write off expenses up to the amount of income (with some limits and rules that apply). The rule does not allow losses from a hobby to offset income from other activities.
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Funded in part by the North Central Regional Center for Rural Development (NCRCRD)
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