author's Steven D. Levitt and Stephen J. Dubner write,
"Some cheating leaves barely a shadow of evidence. In other cases, the evidence is massive. Consider what happened one spring evening at midnight in 1987: seven million American children suddenly disappeared. The worst kidnapping wave in history? Hardly. It was the night of April 15th, and the Internal Revenue Service had just changed a rule. Instead of merely listing each dependent child, tax filers were now required to provide a Social Security number for each child. Suddenly, seven million children - children who had existed only as phantom exemptions on the previous year's 1040 forms - vanished, representing about one in ten of all dependent children in the United States."
Have you ever wondered about depreciation? If you are a small or large business owner it's probably crossed your mind, or more likely your accountant's mind, a time or two. Items are depreciated over a period of years say 3, 5, 7, 10 etc. It depends on what the useful life of the item is. A computer or a car is depreciated over a five year period, for example. Using the straight line method, meaning simply that you divide the items value by the number of years allowed for depreciation and use that amount as your yearly depreciation figure for the life of the product.
If you want to read more about depreciation the IRS has a treasure trove of material like the ever popular 112 page Publication 946, How To Depreciate Property. No wonder accountants make good money.
Here's the interesting trivia.
The tax code is unusually careful in explaining the depreciation of horses (mainly the racing kind). I say unusually careful, because most of the business owners (or non-business folk) in the U.S. are not lucky enough to own a race horse.
Want to know who runs America, down to the tax laws?
Sorry you already know - it's the rich people - like the recently ousted Michael Brown head of FEMA with an unlikely background as Czar of the International Arabian Horse Association. I guess in some sense he did okay, as the article says,
"He's done a hell of a job, because I'm not aware of any Arabian horses being killed in this storm," said Kate Hale, former Miami-Dade emergency management chief. "The world that this man operated in and the focus of this work does not in any way translate to this. He does not have the experience."
Nobody cared about his experience when he was made a political appointee - it was all about the money and who he knew. Unfortunatly for the poor people in Louisiana, Mississippi and Florida - who he knew and his money connections didn't translate to competency. But that's old news.
Back to the race horse deduction. You can depreciate a race horse used in your business endeavors over three years (not just a horse your racing around on for the heck of it...were talkin bizness expenses here). Real racing. That's a two year old race horse by the way. If you happen to use a regular old horse in your business it has to be 12 years old when placed in service (and then you can depreciate Mr. Ed over three years).
There's another tax code item tailored for race horse owners in Publication 535, Business Expenses. This is the section where the IRS decides if you are just fooling around writing off business expenses and not making a profit. If you are a non-race horse owner you have to show a profit in 3 of the first 5 years of your biz.
However...if you are in the horse racing business you have 7 years and only need to show a profit in 2 of those 7 years. From the pub -
"An activity is presumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year. Activities that consist primarily of breeding, training, showing, or racing horses are presumed carried on for profit if they produced a profit in at least 2 of the last 7 tax years, including the current year. The activity must be substantially the same for each year within this period. You have a profit when the gross income from an activity exceeds the deductions."
You say the closest you got to horse flesh was eating that can of dog food because you couldn't afford another meat or meat byproduct?
Do you have an economic interest in any Oil Wells? Mineral Deposits? or Timber? If so you can get some pretty good bucks back from good old Uncle Sam via the depletion allowance. Of course as the word says the key is "depletion" - you have to cut down the trees, pump the oil and mine the ore to protect your moolah from the tax man.
What is the moral of this story?
Well there's cheating and then there's CHEATING.
Anybody want to go in on a race horse?
