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Business or Hobby? – Determining Your Status

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230 – May, 2018

BY WILLIAM GIVEN

The vast majority of breeders, who are our friends and neighbors in the dog show community, do not often consider their purebred dog breeding operation as a business. Most are very surprised to learn that one does not have to have a large kennel or have countless years of experience to be considered a business. According to the Internal Revenue Service, if your main objective is to make a profit, then you are considered a legitimate business. Since most hobby breeders usually have a full-time job, from which they normally receive all or a significant portion of their income, and often try to offset the costs of their hobby (showing dogs), the IRS will not consider them a real business.

Hobbyists may only deduct their expenses up to the amount of income that was earned. However, when a profit motive exists, breeders of purebred dogs are able to deduct expenses greater than the income of the business. Since the IRS will be seeking to determine if you are a real business, there are several things that you have to consider. The following are some important tips to keep in mind if you are running a dog breeding business:

• Prepare a business plan and follow it, and keep accurate, up- to-date records of the money spent and earned, and all of your dog related activities.

• As the business owner, it is important that you invest a signif- icant amount of your time into your business, develop your knowledge of genetics and methods of breeding and have a solid understanding of the dog show game.

• It is generally unfavorable if a substantial portion of your in- come is coming from other sources other than your breeding operation. If you can combine it with another profitable activity (antique or contemporary dog art) as a vendor at dog shows, the IRS should have no issue with it.

• The IRS understands that things happen and your business may not make a profit each year. The “hobby loss rule” suggests that you should show a profit 3 out of every 5 years with a dog breeding business.

• The breeder should continually work to stay abreast of current trends and to, hopefully, get ahead of any emerging trends in dog breeding, and always be looking for ways to improve their business acumen.

• The IRS often looks at the owner’s personal tax records and any previous business ventures. Therefore, it is important that your record is clean.

• Showing a profit whenever possible will help strengthen the fact that you are running a profit-motive driven business.

Click here to read the complete article
230 – May, 2018

Short URL: https://caninechronicle.com/?p=143734

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