Dog Breeder Expenses -- No sale of Puppies to Date

[Gloria]

I have an appointment with a new client next week and he indicated that in late 2006 he purchased 3 UKC registered dogs and the purchase price was written off in 2006. For 2007, he has taken the dogs to shows and has purchased a travel trailer and he has quite a bit of expenses. He takes the dogs to the shows so that when they have puppies he can show the awards earned to be able to justify a higher selling price.

Since the taxpayers has not had any income for 2006 or 2007 from sale of puppies as he has not started breeding the dogs yet, will this create a problem? When I meet with him, I am going to ask questions to make sure this is not a hobby versus a business. If it does seem that it is a legitimate business, would he have any problems with not having any income from the business to date?

Thanks in advance for your advice.

[kcjenkins]

Since the dog business is the absolute most audited for 'hobby' issues, with horses a close second, I think you have to consider two things. One, you have to charge enough to cover all the extra work it's going to generate when he starts getting letters, audit notice, etc. Two, do you really think he's going to operate this as a business?

It sounds like he has not yet started the 'business' part of the dog business, anyway. If he pushes hard to take it, make sure you charge more than for a 'normal' Sch C. Because it's going to be a problem.

[GERALD]

KC is absolutely right. Proceed with caution! My favorite ploy is to ask to see their business plan showing when and how they intend for the business to show a profit. Besides the two KC mentioned, this has helped dissuade, or turn away breeders of "fighting chickens" ( even tho actually fighting them is illegal), breeders of tropical fish, and more dirt track car racers than I can remember.

[michaelmars]

I Have been breeding kaos and disorganization all tax season, not to mention discontentment, resentment, and revolution from my employees, can i deduct any of that?

Any ATXers want a 2-3 day job next season

Any cpa's or 6+ experienced accountants want a full time job?

15 person firm Long Island! Great Boss! Lots of perks!

[Gloria]

Thank you KC and Gerald for your advice.