I have owned horses for a long time. When my late husband and I got married we decided to combine our horse interests and use the horses as a business. First we wrote a business plan that we could use to guide us in the business. The business plan was a benefit when we were audited the first year. A business plan is only a guide to follow as you develop your business. The most important question to determine if you are a business: Are you in the business for profit? If the answer is yes then you may be qualified as a business. However there are 9 factors the IRS uses to determine if you have a business. The nine factors are:
1) the manner in which the taxpayer carries on the activity
2) the expertise of the taxpayer or the use of advisers
3) the time and effort expended by the taxpayer in carrying on the activity
4) the expectation that the assets used in the activity may appreciate in value
5) the success of the taxpayer in carrying on other similar or dissimilar activities
6) the taxpayer’s history of income or losses with respect to the activity
7) the amount of occasional profits
8) the financial status of the taxpayer
9) the elements of personal pleasure or recreation involved in the activity
Not one of these factors is decisive. You would be required to pass on a majority of the factors. The factors are also not exclusive as the government could look at other factors that are not on the list.