Tax Court: Horseless horse business

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.


$70,000 settlement
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.

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Mariana Fieraru
Mariana Fieraru, an Eastern European transplant, fell in love with her new home shortly after landing in New York. She "discovered" pizza! Years later she still loves pizza. And so do her two feathered-kids, Sunny and Flipper

Mariana worked on both, the east and the west coast.
Big or small, each project she worked on helped define the importance of gaining and sustaining a competitive edge in an increasingly complex business environment.

Business know-how, love of teaching and writing – all combined in 2006 to form OBI.
Its mission: to make learning fun! And easy.

Through its training, consulting, and publications OBI builds bridges of knowledge to take you from where you are to
where you want to go. Using a mix of serious, informal, analytical, and optimistic approach, OBI truly makes learning fun.

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