Equine Accounting: What expenses are deductible related to buying and training a horse for sale?

It depends on many factors:

What was your intent when you purchased the horse? When you purchased the horse, was your intent to buy the horse, put some training into it and then resell it? OR - did you purchase the horse to use in your lesson program and it wasn't a good fit, bought him as your own horse and you outgrew him, etc?
To document your intent, write a business plan at the time you purchase the horse including how long you will keep the horse, any shows and/or clinics you plan to attend, when and where you will advertise the horse and any other plans that demonstrate the business purpose of this purchase.
If you purchased the horse to train and sell, regular expenses such as feed, farrier, vet, etc would be deductible. BUT the amount that is deductible MAY be limited to the amount of your related income for that year. (See below)
Have you engaged in this type of business venture previously? Is this horse one of a number of horses that you
have purchased and sold? If you have a regular history of engaging in this type of business, then your related expenses would be deductible in the year that you incurred them.
Is this business venture part of a related equine business (lessons, boarding, training barn...) which is a significant source of income for you? If you currently operate a related business, then buying and selling horses could be seen as a natural extension of your current business and all regular expenses should be deductible in the period in which they were incurred. Please note that the related business should represent a significant source of income for you. If you board one horse in your barn in addition to your three but you work as a CPA full time, the IRS will probably not recognize your buying/selling activity as a regular business and the amount and timing of your deductible expenses may be limited.

Do you have income related to this activity in the current tax year? If the IRS considers this buying/selling activity to be a hobby activity, then you may only deduct expenses to the extent of your income from this activity. So if you have no sales in the current year and this is deemed to be a hobby activity, no expenses are deductible.

Basically, it all boils down to whether or not the IRS would view this activity as a business or a hobby. If it is deemed a business, regular related expenses are deductible. If it is deemed a hobby, then only expenses less than or equal to your income from this activity in the same tax year would be deductible.

For example: Suzy bought Flame in Jan 2010. She trained him and sold him in Dec 2010. She paid $6,000 for him and sold him for $10,000. Her expenses related to keeping Flame for bedding, food, farrier, vet and occasional lessons were $5,000 in 2010.
If Suzy is a regular buyer/seller of horses or has a related equine business that the IRS would deem to be a business activity, here is the calculation for this transaction:

Horse sales price: $10000
Less horse purchase price: -$ 6000
Gross profit $ 4000
Less related expenses -$ 5000
Loss ($ 1000)
This loss can be applied against other income such as salary of spouse, investment income, etc.

If the IRS would deem this to be a hobby activity, Suzy can only deduct related expenses up to the amount of the gross profit ($4000) in this example. And if Suzy bought the horse in 2010 and sold it in 2011 (as a hobby activity) and had no other related income in 2010, she could not deduct any expenses incurred for this activity in 2010.

So what sometimes starts as a money-making opportunity can end as a tax nightmare. Be sure you understand all of the details of how this may impact your tax situation. It may still be a great idea to buy a horse, put some training in and then resell. You'll have some extra income and NO Tax surprises on April 15.

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The Changing Landscape of Information Access

Helping Businesses Make Wise Choices

Every business using technology should recognize that the rules regarding information security are changing.

Conceptually, cloud computing creates new challenges for information security professionals, because sensitive information may no longer reside on dedicated hardware. Where physical security was once a primary element of data access, virtualized services and remote accessibility have redirected the discussion to more ethereal areas.

How can enterprises protect their most sensitive data in the rapidly-evolving world of shared computing resources? Vulnerabilities have been found in the cloud and software-as-a-service models, raising the question of cloud computing's impact on security and the steps that will be required to protect data in cloud environments. Particularly when it comes to integration of services and data sharing amongst cloud solution providers, who, exactly, is in control?

While the concepts of centralized processing, shared computing resources, and subscription-based services are not at all new, many of the technologies being applied today are new. When we consider the fact that new vulnerabilities are still being discovered in older software and systems, why would we assume that new cloud computing tools and services would be immune?

Cloud computing and software-as-a-service technology models often shelter the user from the realities of the systems (hardware, software, networking, etc.) that comprise the service. Before investing your business in a fully cloud-based solution, make certain that you fully understand your risks and how they might be mitigated.

As Sun Tzu wrote in the Art of War,  " If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle."

Make Sense?

J