For decades Denise M participated in activities connected with horses.
A trained dressage rider, she and her horse took part in competitions.
And other related activities.
Then things changed.
After 2008 Denise didn’t own any horses
She was supporting herself with income from her IT business — working 5 to 6 hours daily.
Denise also spent considerable time on a litigation process with her homeowner association (HOA).
(She sued her HOA disputing construction defects and other nuisances.)
In 2010 Denise and IRS found themselves in a disagreement.
In 2010 Denise received a $70,000 settlement from the HOA.
She didn’t think she had to include all of the $70,000 settlement in her income.
Denise claimed some of that sum was for pain and suffering.
(Therefore not includible in income.)
The Tax Court looked at the $70,000 settlement documentation.
And found no mention of “pain and suffering.”
Horseless horse business
She also claimed losses from her horse business.
The IRS didn’t agree with that either.
Especially given the fact of how she spent the majority of her time
(IT business and litigation process).
The Tax Court looked at other factors as well:
Business plan, timeline, ROI, etc.
After analyzing all the facts, The Tax Court didn’t agree with Denise.
And that’s the story of the horseless horse business.
* * *
The moral of this story?
When filing your income tax don’t let your imagination run wild.
The numbers you put down need to be based in reality.
When you start a business ask yourself:
Do I intend to make a profit?
Or it’s just a hobby?
How you answer will make a world of difference at tax time.
Thanks for visiting.