I understand the LLC concept as it relates to standard business entities, but what are the benefits of amateurs setting up an LLC and having their horses owned by such? Wondering if we should do the same, but would like to hear from people here who can explain it from the amateur horse owner perspective. Thank you.
Consult a CPA as advice based on misinformation or assumption could get expensive…don’t think there a problem with Ammy status long as it’s your LLC. But check with USEF, I could be making an assumption based on misinformation.
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I would definitely contact USEF as far as Amateur status and having an equine-related LLC. Even though the LLC is technically conducting the business transactions, your are still an owner/member of the LLC and financially benefiting from it.
What are you doing with your horse(s) that would make you want to establish an LLC? Buying/selling? Leasing? Lessons? If you’re just looking for general liability protection, it’d be a lot easier to just have a really good personal liability or umbrella insurance policy.
Having a business tied to your name/SSN will carry on your personal financial records. It will be considered when buying a house, applying for a car loan or any other loan, etc. If the business has declared any loss within the last three years, it’ll be more difficult to get a home loan or something of that nature. You can provide a written explanation as to the purpose of your LLC and reasons behind the financial loss to try to convince them to still approve you, but they can be really picky.
The main point of an LLC is to separate business liability from your personal liability. Thus, if something happens under your business name and a personal wants to sue the business, it protects your personal assets.
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Beware when you operate as a horse business, your decisions must be based on satisfying the requirements of a business, not on just enjoying your horses as a private owner. Like selling something you don’t want to.
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You can set up an LLC as an amateur but there are very specific requirements for having a business. There is a difference between having a hobby and having a business. A horse business has to make a profit I believe 2 out of 7 years of business. Are you profiting from your horses (either by selling or winning prize money) and are you declaring the profit on your taxes? Horse businesses are notorious for not making money and the IRS will come after you if they suspect your business is really a hobby.
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Regardless of all my other reasons, I would still have my horses under an LLC just so I don’t have to give out my SSN to horse show managers. With an LLC, I can give them my EIN instead.
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Just because you have an LLC does not mean that you have to run your equine activities as a business with all the associated tax implications. Anyone can create an LLC. Obviously consult your CPA, but there is no requirement for an LLC to have income or profits–unless of course you are trying to take business deductions.
The upside of having an LLC is that if you have significant assets, having your horses in an LLC could potentially protect you (and your other assets) from liability. However, you have to pay fees and taxes to create and maintain an LLC, which vary by state. Depending on your financial status, the costs may or may not be worth it.
As far as amateur status, forming an LLC does not allow you to get around the amateur rules. You can certainly have a for profit equine business, but it still can’t involve you riding or training other people’s horses.
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I started a small business to buy and sell horses, and established my LLC to keep the business transactions separate from my personal horses for tax purposes. Outside of having a business or, as another poster mentioned, using the LLC to avoid giving your social security number, I’m not sure there are any benefits to having an LLC.
If you are considering starting a business, consult a CPA with a specialty in horses. There are very specific requirements to determine that you are, in fact, running a business and not just trying to write your horse activities off your taxes. Some of those requirements are intent to make a profit, a written business plan, and keeping separate books and records.
Here’s an example of why an amateur who is not running a horse business would form an LLC. I have a client who owns many horses. She and her husband are fairly wealthy and own other businesses and assets and their name is recognized in the community. Having the horses owned by an LLC gives this owner some privacy–few people would recognize the name of her LLC. Also, her horses are boarded or in training or competing at various venues and largely handled and ridden by other people. She is not constantly present to ensure that her horses aren’t being handled or ridden by someone who isn’t supposed to such as a minor or another amateur. Some of her horses are young and/or more difficult to ride/ handle. Should some crazy accident occur, the LLC (as the horse owner) would be the liable party. Her family’s assets are not put at risk by her high liability hobby.
I’m neither a lawyer nor a CPA, and I would suggest that anyone wanting to form an LLC consider consulting with one or both of those parties beforehand to get all the details and be appraised of the legal and tax implications for your state. For many people, having a good horse owners’ insurance policy is a reasonable alternative to having an LLC.
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Another scenario which may be beneficial to add onto what BeeHoney gave as an example (and this may be Nickelodian’s situation, but I’m not sure…) is if you are an amateur owner who owns a horse that is leased out regularly. You can make some money off of selling and leasing out your own horses and still be an amateur. If you have a horse who is regularly out on lease, then there’s some more liability risk similar to BeeHoney’s client who has horses regularly being handled and ridden by other people. If the horse is owned by the LLC, then even if the income from the lease still constitutes hobby income and not business income, the owner’s personal assets are protected from liability. That’s separate from the issue of how you handle taxes.
Much of the information in this thread is dated or false. 2 out of 7 years profit was changed a few years ago. No one is going to make anyone sell anything they don’t want to. My LLC business losses are not tied to my credit history unless I declare bankruptcy. Hobby income and losses are scrutinized more by the IRS than LLC (much lower audit rate), and it has diddly squat to do with my ammy status.
I have an LLC due to several reasons, some of which are mentioned here. I buy and sell horses, I lease horses, I own a truck and trailer and haul, and I don’t want to give my SSN on every entry blank in the country. The first three are liability protection, the last is a me protection. There are also Tax benefits, but I’ll leave it to a CPA to work with you on that. I have had income on my horses for about the last 6 years (though never a profit), and some day, eventually, I might sell a high dollar animal. The LLC will prevent that sale from being taxed at my overall bracket. I file my LLC taxes separately, my CPA does the details.
The cost wasn’t high, and worthwhile to me. PM me for more details
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I think it is worthwhile to emphasize that the decision to create an LLC and the decision to have a horse business are two separate decisions. You don’t need to commit to having a horse business to create an LLC.
Generally speaking, an LLC is one of many corporate forms for a business. Whether it is the right form your your business depends on the nature of your business. Whether you are or are not an amateur isn’t really relevant. The issue is whether it is a suitable form for your business. Some amateurs buy/sell horses as a business. They can do that (within some limits/rules) and be amateurs. If you don’t have a business that would relate to the ownership of your horses/barn/equine business then you really don’t have a reason to have any form of business at all. Corporate forms have tax benefits and can shield the owners from liability from the business… but again there has to be a business.
I have one. It keeps everything that I use for my business owned by my business, and limits liability to the business and not our personal assets. That is huge. As others have said, an LLC does not mean you are running a business, and does not make you a pro.
Tell that to my mortgage lender 5 months ago. It was ridiculous getting my farm loan, thanks to something that was over three years old.
Glad you had a better experience.
Was your equine business your main source of income or a side LLC?
Side
