Horse Racing

Ask an expert: Taxes in 2021


Editor’s Note: Back by popular demand: our column where readers asked Len Green of the Green Team for tax-saving advice on their horse-related activities.

What tax law changes can I take advantage of this year to maximize my tax savings?

–Kerry L., Lexington, KY

2021 is another exciting year when it comes to delivering new laws that can save you taxes.

1. First year expenses for qualifying property to be put into use are allowed up to $1,050,000. This will include the purchase of horses and more fixed assets used in your trade or business.

2. Eligible Corporate Income Deduction

If you are the sole business owner or have an interest in a Partnership, Limited Liability Company (LLC), or a Sub S Corporation, you may be eligible for a tax deduction of up to 20 % of your Eligible Business Income.

It’s important to note that, if you qualify, this is considered a personal deduction and can be used even if you take the standard business deduction.

3. There are also positive changes in:

A. Child Tax Credit
B. Dependent and excluded care credit
C. Earned Income Tax Deduction
D. Charity donation

I own stallion stock. One of the stallions I own was sold overseas this year. Can I replace that season with a new one to avoid paying taxes any time of year?

–John S., New York, NY

Great question.
Prior to this year, there was a tax code section (Section 1031) that allowed tax-free exchanges of similar properties.
If you meet the rules, you can delay the gain, if any.
Under the new regulations, Section 1031 deals only with real estate.
But you can accomplish your goal in a different way.
If you sell stallion stock and the amount sold is greater than what you paid for the stock, you will make a profit.
If you buy a new stock or any personal property (horses or farm equipment) and it qualifies for a one-year write-off (Section 179) or write-off of first-year expenses, you can offset the above profits with a tax deduction when using one of these methods.

I bought an aspiration in September and plan to sell it at the March 2nd Sale. Is it the same season? Or two different years?
–Gregory L., Montclair, NJ

I’m assuming like most taxpayers, you’ve got a calendar year to file your taxes.
So the purchase of the year will be recorded in one year and sold in the other year.
If this were your casual business, we might call you “game of billiards”.
You will record the purchase as inventory in the year it was purchased, and the cost of the crop year will offset the next year’s selling price when the animal is sold.
If you are not a “snooker player” but bought the desire to race but decide to sell within the next year, there may be different alternatives for how you handle the trade.

What is bonus amortization and how will it affect my boarding business this year?
–Vicky F., Paris, KY

Bonus depreciation is defined as additional depreciation for the first year (Section 168(k)) of the Internal Revenue Code.
It may be claimed in addition to any first year costs described earlier in the article.
A depreciation bonus may be claimed on qualifying property whether it is new or used.
Something New: It also includes “qualifying enhancement properties.”
The items included in this special are:
Any improvements to the interior of an existing building’s building are made after the building is put into service.
Examples of eligible properties: fences, watersheds, replenishment stalls and barns

I am planning to start a purebred small business. Can you explain the difference between S Corp and LLCs as they relate to taxes?
Tom C., Louisville, KY

There are many advantages to running your trade or business as a Limited Liability Company or a Sub S Corporation.
Protecting against possible lawsuits in itself is a great reason to do so. There are also some tax advantages.
To maximize your tax advantage, you should form an LLC with at least two partners.
By taking the steps to form either of these entities, you will demonstrate that you are taking the steps to run your operations in a business manner.
You will not attach personal expenses to your business expenses.
LLC offers more flexibility and many other advantages over S Corps. One advantage of the S Corp over an LLC is the avoidance of self-employment taxes.
Is it too late now to make any changes that will save me money on my 2021 taxes?
–Susan M., Chicago, IL

The answer is usually no if you are reporting your income and deductions using the cash method.
But here are some:

  1. Check if you are eligible for a pension scheme deduction for 2021.

The rules are complicated, and you have to check to make sure you’re not covered in another company’s plan.
But assuming you are eligible, certain pension plans (SEP IRA, IRA) allow the claimed tax deduction for 2021 as long as the pension payments are made before 15 April 2022 ( or extended due dates for SEPs).

  1. If you’ve purchased certain business equipment and put it to work, even if you don’t pay for it all by 12/31/21, you may be able to deduct the cost of the equipment in 2021 .
  1. If you paid your estimated state tax payments on January 25, 22, and your total tax costs did not exceed $10,000, some portion of the 1/15/22 payment may be tax deduction.

It’s not too late to submit your own question before tax season and get an answer from Len Green. Email [email protected]





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