You might be overcomplicating it by making a separate company for buying and selling a single horse.
As well as comments above, I would also consider that if your company owns the horse, then your company will have to have the relevant memberships (association/breed) which can add up. You also have the risk that if something happens to you, the horse could be considered as asset against business debts, vs something you can just leave to someone in your will.
The only real benefit I can see is possibly liability, but the cost of insurance is likely less than the cost of filing separate taxes and forming the LLC in the first place.
I recall setting up an LLC when I boarded, but it was mostly liability and to limit damage in the event something happened and someone sued. Also something that was not a winning endeavor in the make-money business but we eeked out every year.
You can simply tack on a schedule C with an LLC. You do not have to file separately.
OP, there are both legal issues and tax issues with forming an LLC. The LLC limits liability, meaning your personal assets are protected. But do you really need this protection? You already ride and show, what is going to change that the horse is a sale horse instead of a personal horse that will cause your liability to increase or change? If you already have liability insurance that covers your horse related activities you may not need to form an LLC. But many personal liability policies do not cover business activities, so if you do form an LLC you may need to purchase additional insurance. If you simply function as a sole proprietor, the insurance company does not need to know the horse is a “sale” horse, unless you ramp it up and have multiple sale horses and are advertising them all over the place.
So your CPA is a good place to start wrt taxes and finances, but there are also legal and insurance issues.
I have a small farm and own income producing race horses, and I file a schedule C as a sole proprietor, tacked onto my personal tax return. My HO insurance covers my liability at the farm with additional liability for the horse activities. I show and haul to other places regularly with my riding horses. The race horses go to the track and race. I also do consulting, and have an LLC for that business with a general liability policy in place to cover those activities. I file an additional schedule C tacked onto my personal tax return for my consulting business.
If you are doing a “one and done” sale horse, you may be able to just make sure you have a liability policy that will cover your horse related activities, if you think you need it. You then do meticulous bookkeeping and file a schedule C, see post 15. If you are making this a business that will be continuous, like post 19, you may want to give your business a more formal structure.
An LLC does provide a measure of protection for personal assets. It is not a “armored” protection, however, and every jurisdiction permits “piecing the corporate veil” if there is evidence that the corporate form is sham, fraud, or otherwise contrary to law or public policy.
Before you spend the money and time seeking this form ensure you know the rules where you are.
I have been thinking of doing what you are thinking of doing. However, for horse #1, I considered it to be very hard to convince the IRS that it wasn’t part of my hobby (I have been declaring some horse related hobby income off and on for years for everything from prize money back when I showed more to significant grooming type income). My research suggested that I needed to show some business activities and not just get a horse with hopes of making a profit. I think the expense of purchase (whether you depreciate or deduct–I think the new code would allow you to deduct the full purchase price in the first year) plus the expenses of keeping the horse, showing, training, etc. would appear to be all of a sudden astronomical in comparison to past measly hobby income to the extent I’ve only been able to declare expenses up to that measly amount. As we all know, there’s no guarantee you will profit or even resell the horse.
Not that you have to make a profit every year, but assuming you have a full time job doing other stuff (as I do), this raises a red flag to the IRS. Because what will happen when you have big money expenses as a single member LLC whose member has another full time job with real income is that you’ll be asking to use those expenses to offset your other (regular job) income on the return.
What I did last year was change my status, take on paid catch rides and lessons, bought insurance, and tried to show the IRS I’m making an effort at having a legit side business, and I’ve included the expenses of the insurance, association memberships, some mileage, limited (non-personal use) equipment etc. on a Schedule C. If the status change is not what you want to do, you may want to get a real horse savvy CPA to help you establish as many of those other factors that help to show it’s a business even though part time. And discuss the best way to account for your expenses vs. income from the start.
This would be my concern. To the IRS it looks as though you are attempting to reduce your taxable income by claiming board, training and competition fees of your hobby as a business expense. A sole member LLC is generally treated as a sole prop. While this may be beneficial for liability issues, you typically file a schedule C and gains (losses) are reported on your individual 1040. Your CPA may have different ideas, these are generalities.
Another poster mentioned capitalizing expenses until the horse sells. This may not be possible if they are deemed regular and recurring (like board/training).
