The Working Families Tax Relief Act of 2004 and The American Jobs creation act of 2004 were both signed into law in October 2004. Some highlights from both acts are listed below - this is by no means a complete list of changes.

The 10% tax bracket now applies to the first $7000 of taxable income for Single filers and $14,000 for Married filing joint filers.

A manufacturer's deduction has been created which benefits U.S. manufacturers, multinational operations, agribusiness, and energy companies. Small businesses,farmers, partnership and real estate investors also share in the bounty. The new deductions starts at a percentage of 3% for 2005 and 2006, and is limited to 50% of the W-2 wages paid by the taxpayer during the tax year.

The small business expensing and depreciation provisions enacted in 2002 have been extended through 2007. These provisions enable businesses to write off up to $102,000 of qualifying capital purchases in the year of purchase in lieu of depreciating them.

Congress has finally closed the SUV loophole. SUV expensing under section 179 will now be limited to $25,000.

The permissible number of shareholders for an S Corporation has been increased to 100 from 75. Additionally, all members of a family will now be treated as one shareholder.

A state sales tax deduction has been enacted. Individuals may deduct state sales tax instead of deducting state and local income taxes. This deduction will be available in 2004. Taxpayers will have two options for calculating the deduction; 1) determine the deduction from actual receipts or 2) using tables prepared by the Secretary of the Treasury.

This is your space to ask Carolyn questions on equine income taxes, equine software or general equine business questions. Email questions to: carolyn@equinecpa.net or visit the online message board at http://www.equinecpa.net/messages. All readers questions will be answered directly, and those of most interest to readers in general will published in this column.

Q: Donating a Horse

Where can I find information on the allowable tax deduction for donating a horse? Thank you. -Colene

A. I'm often asked about the tax consequences of donating a horse so I have chosen to answer this question here. First of all, the answer depends on whether the horse is inventory, ordinary income property or a capital asset. A horse is inventory if it is held for resale in a business. It is a capital asset if it is held personally or for investment purposes or used in a business to earn income (eg breeding or racing),and held for over 2 years (for some donations you may have to treat part of the donation as capital and part as ordinary income).It is ordinary income property if it is a depreciable asset of the business.

Inventory: If a horse is inventory you must deduct the cost from your opening inventory. You may then take a charitable deduction for the lower of cost or the horse's fair market value.

Capital Asset: When figuring your deduction for a gift of capital gain property, you usually can use the fair market value of the gift.

Ordinary Income Property: The amount you can deduct for a contribution of ordinary income property is its fair market value less the amount that would be ordinary income or short-term capital gain if you sold the property for its fair market value. Generally, this rule limits the deduction to your basis in the property.

Note that when claiming a contribution of a horse valued over $5,000, a qualified appraisal is required.

More losses in the courts: Three horse businesses went to tax court in 2004 to defend their position that they had a profit motive and were not hobbies, in all 3 cases the judge ruled in favor of the IRS.

On Nov 08, 2004 Judge Vasquez ruled that losses the taxpayer (Montague) had incurred were hobby losses and not business losses like the taxpayer had claimed. The expectation of profit need not have been reasonable; however, the taxpayer must have entered into the activity, or continued it, with the objective of making a profit. Per Vasquesz "This commingling of funds is an indication that the activity is a hobby rather than a business for profit. Petitioner also did not generate or maintain business documents or records. We conclude that petitioners did not conduct the horse training and breeding activity in a businesslike manner, and this fact indicates that the activity was not engaged in for profit." To see the full text of this case, follow this link: Montague

I may sound like a broken record but I continue to advise all of my horse business clients to ensure they have an up to date business plan on hand, and that they make every effort to run their horse business like any other business, with proper accounting and record keeping. Do not comingle business and personal funds-open a separate bank account for your business.