Starting an equine business can be difficult, as well as tricky. Considering the nature of equine work, you can easily garner unwanted attention from the IRS. Many horse businesses end up getting audited by the IRS because they file no income but still document plenty of expenses. This often happens to breeding farms, whether just starting out or those that may not have sold a single horse in a year, but many other equine businesses are found guilty as well.
If you want to be in the good graces of the IRS, it helps to keep some things in mind that will help keep your equine business out of their attention.
Separation of What’s Personal and What’s Business
It’s incredibly important that you make a distinction between your personal and your business accounts. Make sure that you have separate checking accounts and that their paths cross as little as possible or not at all. You should be operating your business as a sole proprietor, so when you open a checking account, file everything under the name of your business. This makes it much easier to track each account separately without getting confused. It also tells the IRS that you are operating as a business, too.
Hire Qualified Workers and Farmhands
When people open their own business, it is not at all uncommon for them to hire friends and family members. This can look suspicious to the IRS, especially if these people are not exactly experienced in the field that you are working in. In order to make sure that things are as legitimate as they can be, hire certified or highly qualified workers who have worked in other equine businesses before, have experience with farm duties or someone who is studying the field.
Make Sure You Have a Plan
Every endeavor needs a plan, but every business needs a business plan. A business plan is essentially an outline that delineates how you expect to operate your business and what you will do in the event that certain conditions should arise. A business plan is essential for getting backers and investors to fund your business and it is absolutely crucial when it comes to keeping yourself organized and on track. Not only that, but the IRS will see that your business is a true business, not just a hobby or passing fancy.
Talk to the Experts
The purpose of your business plan is to find investors who are likely to support your business, but many of the people you consult before starting your business will also be experts in some form or another. Before beginning operations, you will likely talk to accountants and other people who have experience in your field of business. These people can help guide you towards building a solid business plan as well as how to do everything legitimately so that the IRS does not audit you. When looking for experts to consult, make sure that you ask the right questions up front. That way, you will not likely make a misstep or forget anything that might hurt you later.
What the IRS really wants to see is that you are running a legitimate business. If you take all of the right steps and adhere to all of the proper measures, you are sure to be in the clear.