Taking Boarders at a Private Barn- Is it a business?

[Eilsel]

I am looking into buying property with horse facilities so I can move my retired horse home and I am planning/considering taking on a few boarders for various reasons (mostly so I don’t fill the place up with more horses of my own!!).

The property has a house and a barn with 4 stalls with runs and about 8 fenced acres of pasture. I would hope to get 2-3 boarders in addition to my horse. I would be offering a retirement board type service as the property does not have amenities like an arena and large tack rooms, etc.

My questions are: do I need to create some sort of legal “business” to take in money this way (like an LLC)? Does this count as taxable income? If you are doing something similar can you tell me about the legal/money side of things?

I have been in the horse industry my entire life as a trainer’s kid, then trainer (on the side of my “real job”), boarder, horse owner. So I am familiar with regular liability issues and boarding contracts, but just clueless as to whether this counts as a business/income.

[DHCarrotfeeder]

In our situation (similar, but with more horses of our own), the answer is yes it needed to be a business entity. I don’t think you’ll end up with a nickel of taxable income because the comprehensive cost of keeping horses tend to exceed the going rates for boarding.

Do you handle your own taxes? If not you should ask your tax attorney. If you do, it’s time to reconsider.

[Jersey_Fresh]

[QUOTE=Eilsel;8965991]
I am looking into buying property with horse facilities so I can move my retired horse home and I am planning/considering taking on a few boarders for various reasons (mostly so I don’t fill the place up with more horses of my own!!).

The property has a house and a barn with 4 stalls with runs and about 8 fenced acres of pasture. I would hope to get 2-3 boarders in addition to my horse. I would be offering a retirement board type service as the property does not have amenities like an arena and large tack rooms, etc.

My questions are: do I need to create some sort of legal “business” to take in money this way (like an LLC)? Does this count as taxable income? If you are doing something similar can you tell me about the legal/money side of things?

I have been in the horse industry my entire life as a trainer’s kid, then trainer (on the side of my “real job”), boarder, horse owner. So I am familiar with regular liability issues and boarding contracts, but just clueless as to whether this counts as a business/income.[/QUOTE]

We have a similar set up (I have my two horses and 3 boarders at home). We set up an LLC for both tax and legal purposes. All of my horses and the farm are under the LLC.

[4THEHORSES]

You don’t need it but it’s prudent to have it.

For legal protection and tax purposes.

[mvp]

Yes, you should create an LLC.

The LLC, in turn, is the business entity that leases the barn from you personally (probably), and conducts business with creditors and customers. Should someone sue the business, the idea is that the LLC and boarding barn is “all there is.” In other words, they can take all of the assets that the business owns, but not your personal assets.

Yes, a boarding barn is a business.

Yes, the income from it is taxable. But more commonly, boarding loses money or makes very small amounts. You do, however, want to make some money, some years and document your efforts to run this like a genuine business with the intention of profitability. The IRS is aware of- and not happy about rich horse people funding their hobbies through sham businesses that, in effect, deprive the public of some of the tax to which they were entitled (because, as you know, most of us pay for our hobbies with post-tax dollars. It’s not like we deduct the expenses for our horse stuff, show the IRS an alarmingly small annual income after those expenses and ask to be put in a lower tax bracket because we spent so much money on our hobby.) In short, horse businesses get extra scrutiny.

Because, however, boarding isn’t lucrative, one of the reasons folks like you do some boarding is to help subsidize their facility (the one they own but lease to the boarding business) with pre-tax income (which goes to the barn which loses money… and then the barn pays a higher lease fee to the its owner (you) for better amenities). In the meantime, you pay board for your horse to the LLC… and the better barn that it helped pay for with its income as opposed to you paying for your own hobby barn out of your pocket with post-tax income. Hope that makes sense.

If you have been in the industry and don’t know this stuff or it doesn’t seem intuitive or familiar to you, I strongly suggest that you find a CPA and attorney to help you set it up.

[bdj]

If you’ll be getting a mortgage to buy the place, check with your broker to make certain that your lender will allow you run a business on the property. Not all lenders will do that (mine wouldn’t when I bought my place).

[Eilsel]

Thanks for all your input! Lots to think about… :ambivalence:

[poltroon]

The money that you receive is taxable. You are entitled to deduct your costs to create that income. In the end, your business may have very little actual net taxable income, but only if you accurately and professionally track your expenses.

An LLC is a good idea but not strictly necessary… I would recommend it unless there’s some special reason not to. I would consult with an accountant about the best way to set up your entity. Definitely create a separate bank account and run all your transactions through it, to make it easier to track. You will want an accountant most likely, especially while you are setting it up.

Just because you can keep horses on this property does not mean you can board them. Your zoning may or may not require a variance. The difficulty in getting this variance can, well, vary. In some communities it’s as simple as asking. In others, you may have a big fight.

You likely also need a business license from your local government entity. These days, that info is easy to find on the web.

[Where_sMyWhite]

I had gotten the impression that the LLC would also help protect your personal assets against a lawsuit. Perhaps something else to think about.

[walkinthewalk]

Great advice from everyone. I would also add that you should consider a liability umbrella policy, along with creating an LLC

I had an emergency and overnight layup for five years. Unfortunately I live where “you can’t get here from anywhere”. Turning a profit was impossible, especially in the years following the 2008 debacle. so I ended up ceasing and desisting (that’s not a word) the business.

[JanM]

You also need to make sure your location is zoned for the number of horses you’ll have including both your animals, and the boarders. You probably have to get a business license also.

[mvp]

[QUOTE=JanM;8966602]
You also need to make sure your location is zoned for the number of horses you’ll have including both your animals, and the boarders. You probably have to get a business license also.[/QUOTE]

Ah, yes: Zoning. This can be a big deal. Most counties have on-line texts of their building codes. It’s a PITA to research, but it’s the place to start. And smaller counties often have friendly, accessible planning departments where you can go and talk to a planner who knows this stuff inside and out.

Generally speaking, you want to figure out which kind of zone already allows for a commercial boarding operation. Or, if your county limits the number of horses per acre, what those terms are. Then, be sure before you buy the property that you have the zoning or variance you need. The latter can be hard to do, but you’d be wise to not buy anything that didn’t already bring with it the legal status you need.

Same goes for clearing this with your lender, as someone mentioned above. I’ll bet, however, that many little operations like yours were bought to be hobby farms with no one planning on having a boarder or two. So I’m not sure how carefully lenders check on the commercial status of your place or how long you are obligated to treat it as a private farm (if you borrow under those auspices) before changing things up.

[Guilherme]

[QUOTE=Eilsel;8965991]
I am looking into buying property with horse facilities so I can move my retired horse home and I am planning/considering taking on a few boarders for various reasons (mostly so I don’t fill the place up with more horses of my own!!).

The property has a house and a barn with 4 stalls with runs and about 8 fenced acres of pasture. I would hope to get 2-3 boarders in addition to my horse. I would be offering a retirement board type service as the property does not have amenities like an arena and large tack rooms, etc.

My questions are: do I need to create some sort of legal “business” to take in money this way (like an LLC)? Does this count as taxable income? If you are doing something similar can you tell me about the legal/money side of things?

Short answer: it depends. Longer answer: it depends, not only on your viewpoint but that of your local taxing agency, zoning board, insurance company, and the IRS. At a minimum.

I have been in the horse industry my entire life as a trainer’s kid, then trainer (on the side of my “real job”), boarder, horse owner. So I am familiar with regular liability issues and boarding contracts, but just clueless as to whether this counts as a business/income.[/QUOTE]

There’s two possible ways to go.

One is to declare what you want to do a “hobby,” like woodworking or portrait painting. If you charge a below market rate (demonstrating you have no profit motive), don’t advertise, don’t have a sign, don’t look for referrals, don’t try and depreciate the facilities, don’t take deductions for expenses beyond income, and declare income as “miscellaneous” then you might be a “hobby.” This doesn’t mean you ought not to insure yourself and take other reasonable steps to protect yourself and your neighbors from harm to person or property. That would be only smart. People who are often described as “back yard boarders” who never make money but depreciate and deduct EVERYTHING often find themselves in “hot water” with the IRS on the issue of “profit motive.” If you don’t have one you’re not a “business.” You might be “hobby.” Maybe even a “charity.”* It all depends on what you do and how you do it.

If you decide you want to make a profit, no matter how small, or if you take money for providing a service then you’ve crossed the line with at least your insurance carrier. Maybe with your local taxing or zoning authorities. I suspect the IRS will also be interested. Now you have to keep much more detailed records, file more reports, file with more agencies, etc. IIRC Kansas tends to be much less a “nanny” state that CT or MA or CA so you’ll likely have fewer members of The Authorities around, but “fewer” does not equal “none.” If you are in a rural, unincorporated area you’ll be less burdened than if you’re around the KC environs.

It really depends on a lot of circumstances. If you’ve got a lawyer you work with buy an hour of their time and ask them your questions.

Good luck in your choices!

G.

*This might even be a third road, based upon what you’ve written.

[specifiedcupcake]

A personal note to consider… I found it really emotionally draining to have people at my home property all the time. It was never quiet or peaceful, always working out some logistical problem (herd dynamics, broken hose, poop management, bedding, hay, etc) …Never again.

[McGurk]

Cupcake, I agree with you, but I believe the OP is looking to do retirement pasture board, with does cut down on the amount of time horse owners spend at your property sucking the life force out of you.

To the OP, one of the perks in my locale of having the farm be a business is it allows us to put most of the acreage under agricultural use, which is a nice savings on our property tax bill.

The farm makes very little money; but it doesn’t need to make a lot - the savings on the property tax are more than worth it.

We do have an accountant file our taxes, and she does the Farm Schedule for us, but other that, it’s pretty simple. We keep records of expenses, and I do a simple income and expense statement for the accountant. We did depreciate the tractor over a period of years.

I would do the LLC and talk to an accountant, investigate the possible property tax savings, and have some contracts drawn up for your potential boarders.

[vxf111]

My accountant did not prefer an LLC as the form of organization, she thought an S Corp was better. Involving a good tax professional is CRITICAL. I love my accountant. She’s a horse person and she’s invaluable.

[airhorse]

Make sure your homeowners allows commercial activities, many will drop you on the spot.

[Magicboy]

Is there still an IRS guideline about limiting the years you can declare a loss? Like make a small profit every 7 years?

[Guilherme]

The IRS has rules and guidelines about profits. I’m not sure of the specifics. It’s too late for sophisticated IRS rules searches!!!

G.

[King_s_Ransom]

There is no rule that you have to show a profit in a business – ever. It’s generally a “rule of thumb” that if you show a profit in 3 out of 5 years, then the IRS will consider a business.

My business did not show a profit, per se, for more than 15 years.

The rules are that you have to operate the business with a profit motive. So, they look at things like, Are you operating in a business-like manner? If you show a profit, then you don’t have to PROVE you have a profit-motive. If you don’t show a profit, then you may be asked by the Boys and Girls at the Service to prove that you are trying to earn a profit.