Tax preparation: Many considerations exist for rodeo professionals when filing taxes

While the tax code is not any different for professional rodeo athletes, Ernest Lee, owner of RodeoTax.com, says that application of taxes for rodeo professionals is sometimes significantly different.

“Oftentimes, many rodeo individuals are not in the rodeos for profit,” he comments. “The average tax professional would look at their expenses for the year as a not-for-profit activity.”

However, for rodeo competitors who are seeking to gain a profit through competing, Lee explains they have the ability to take the deductions a for-profit enterprise would take.

“Our travel, meals and fuel to and from rodeos may all be deductible for rodeo professionals or someone engaged in rodeo for profit,” he comments.

For profit

Rodeoing on a part-time basis does not immediately exclude rodeo professionals from filing their rodeo taxes on a for-profit basis.

“As long as it’s structured as a for-profit enterprise, where it’s something that we’re aspiring to make money doing, that’s fine,” he says, noting that many of his clients work a regular nine-to-five job and then have a side business of boarding horses, training or rodeoing.

To be able to file for rodeo expenses as for-profit, Lee explains rodeo professionals must structure themselves to be identified as such.

“The ways to structure ourselves so it’s identified as for-profit is to keep track of our mileage, fuel expenses and all of our rodeo-related expenses,” Lee comments.

Another helpful way to structure rodeo as for-profit if someone is training horses on the side is to take those horses to rodeos to gain arena experience for later sale.

“It doesn’t mean we necessarily have to sell the horse, but holding it out for sale is important,” he continues.

Special considerations

When filing taxes, several special considerations should be taken to ensure forms are filled out properly and appropriate deductions are taken.

Lee explains that rodeo activity is not a Schedule F activity, which is the form used for farming and ranching operations, but rather a Schedule C activity.

“I would ask the preparer to do a Schedule C for my rodeo activity, separate from my farming activity that I do,” he says. “That’s something I see all of the time, and the two activities are actually treated differently under the tax code.”

While meals and entertainment are usually 50 percent deductible, there are instances where they may be 100 percent deductible, says Lee.

“For instance, if we have a ranch with employees, and we’re supplying those meals, then they may be 100 percent deductible to the rancher who is supplying them,” he comments.

While more challenging to keep records on, Lee strongly encourages rodeo professionals do actual expenses on vehicles rather than mileage expenses, in most cases.

“Although mileage is enticing because it’s easy since the recordkeeping requirements on mileage is not very difficult, it only covers about 53.5 cents per mile,” Lee continues, “With today’s trucks that only get 10 to 12 miles per gallon, we eat up a lot of that right away.”

Audits

Lee notes that audits do occur occasionally on tax returns that rodeo professionals file.

If rodeo professionals find themselves being audited, Lee strongly advises they seek help from a tax expert immediately.

“The smartest thing to do is to immediately seek help because the Internal Revenue Service (IRS) will ask questions in a way that steers you in their direction instead of a direction that’s best for the you,” he says.

Lee’s company regularly assists professional rodeo competitors with going through an auditing process.

“We have clients who come to us that are already in an audit, and we’re happy to help them,” comments Lee, noting that clients who prepare tax returns with him will receive court defense included in their preparation fee.

“If I put something on a tax return that saves clients a lot of money, I’m going to stand by it to defend it with my own money,” he continues. “I’m not going to put a client in a position where they’re going to end up with a bunch of fees for defending an audit of something that I put on a tax return.”

Resources

If rodeo professions have any questions or concerns about the logistics of preparing tax returns, Lee stresses he is available to answer questions regardless of whether they use his services.

The IRS website also features Ppublication 225, the Farmer’s Tax Guide, which may be useful in determining what is considered a Schedule F activity.

“The RodeoTax.com website also has information that may point people in the right direction,” Lee concludes, “But if someone reads the website and has a question, they can always give us a call at 855-376-3785.”

Emilee Gibb is editor of Wyoming Livestock Roundup and can be reached at emilee@wylr.net.