![]() ![]() Books of account are maintained on the horse operations.He employed professional horsemen and a veterinarian.He personally worked on the upkeep and maintenance of the stables.Client lived in close proximity to his stables.We forcefully and vigorously argued that he met all the tests and criteria mandated by the federal courts in the several circuits of the United States with regard to being “engaged in trade or business for gain or profit” and not engaged in a “hobby.” Specifically: We successfully argued that in the matter of losses deducted on the federal income tax returns pertaining to the operation of a horse farm, that he was in compliance with statutory law and case law. Expenses incurred in the operation of the stables include the ordinary and necessary expenses of veterinarian services services of professional trainer feed repair and maintenance of stables insurance property taxes and transportation for the horses. Tax losses in prior year audits had never been questioned or disallowed. My client attends to his stables on a daily basis and devotes his weekends almost exclusively to the care of the horses and stables. He is actively engaged in the care and maintenance of the horses, barns and stables. He devotes 20-25 hours a week to the work and business affairs of his stables. There is a separate checking account just for the horse operation. Financial books and records of the horse operation are maintained apart from the clients other financial activities. The client employs hired help at the stables and regularly consults with veterinarians, at considerable expense. My client is a lawyer who makes his home on his horse farm in Georgia and does indeed earn his living as a lawyer. I took strong issue with the government’s position and appealed the auditor’s decision. The greatest evidence that it was a hobby, said the auditor, was the fact that it had not turned a profit in recent years. The IRS argued that my client being a wealthy lawyer, was not engaged in the horse farm business as it was not his primary occupation, and that he was merely a “gentleman farmer” engaging in a “hobby” that gave him great personal pleasure. The IRS audited his return and declared his horse farm to be a “hobby” rather than a business and disallowed his farm losses. If a sole proprietor in Maryland possesses personal property (furniture, fixtures, tools, machinery, equipment, etc.Several years ago I had a client who entered into the business of breeding horses for the purpose of sale at a profit. The Maryland form for quarterly estimated tax payments is Form PV. Sole proprietors generally do not have taxes withheld from their income so they usually make quarterly estimated tax payments. Your net profit or loss is combined on the return with your other income and deductions and taxed using individual tax rates. If you are a sole proprietor in Maryland you would file the same as an individual using Form 502. Maryland Information for Sole Proprietors See Sole Proprietorships on the IRS Web site for federal information. Sole proprietor farmers file Schedule F, Profit or Loss from Farming. Federal Information for Sole Proprietorsįor federal purposes sole proprietors file Schedule C-EZ, Profit or loss from Business with their personal tax return Form 1040. Every sole proprietor is required to keep business records to comply with federal and Maryland state tax law. Sole proprietors can operate any kind of business as long as it is a business and not an investment or hobby. In general, for Maryland and federal purposes the owner is personally responsible for all financial obligations and debts of the business. It is easy to form and is defined as any unincorporated business owned and controlled entirely by one individual. According to the IRS, a sole proprietorship is the most common form of business organization.
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