A: Your question is simple and straightforward, so it's surprising that your accountant's advice was dead wrong, says Mark A. VanDeveer, a CPA with Thatcher + Benson PC in Virginia Beach. You can deduct the expenses you're incurring in connection with your horse-boarding business, as long as the loan is in your name and the proceeds can be shown to be used in the business. You should also be able to deduct the accompanying interest paid on the loan.
TOO MUCH FUN. "The costs of clearing the land will have to be capitalized and then recovered over time," VanDeveer says. In the same manner, the cost of the buildings will be recovered over time through depreciation. But there's no problem with you remaining a sole proprietor in terms of your business entity.
VanDeveer adds one general caution: "Horses and the IRS usually don't go well together. Many times, an IRS audit will reclassify a horse operation as a hobby and disallow any losses," he says. If the IRS judges that the element of personal or pleasure use of your horses is too great, you'll have to prove your outfit's profit-making motive, potential future profits, and other factors that indicate it is a genuine business and not a hobby. "There have been many cases decided on these issues over the years, both for and against taxpayers. In this particular case, the taxpayer should be ready to explain how this expansion will lead to increased business and the basis for making this business decision," VanDeveer says.
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