Academic journal article Journal of Accountancy

Horse Sense Applied to Startup

Academic journal article Journal of Accountancy

Horse Sense Applied to Startup

Article excerpt

In its first ruling of 2007, the Tax Court concluded that a woman could deduct expenses of for-profit horse boarding and training that later grew into a business. Had the IRS prevailed, taxpayers who engaged in a for-profit activity with the hope it would grow into a full-fledged trade or business would have been required to capitalize expenditures incurred during the for-profit activity period.

Individual taxpayers may deduct expenditures related to a for-profit activity (an itemized deduction) as well as expenditures related to an active trade or business (a deduction for AGI). A trade or business is distinguished from a for-profit activity by the regularity and continuity of its economic activity. Previous courts have held that the same standards to distinguish capital expenditures from ordinary expenses should apply to both types of activities. Costs incurred by a taxpayer in anticipation of the start of an active trade or business ordinarily have been required to be capitalized. Taxpayers may elect to deduct up to $5,000 of startup expenditures in the year a trade or business begins.

In 1998, Julie Toth opened a horse breeding and training facility near Portland, Ore. …

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