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standard mileage rate or actual expenses. For tax year 2009, the standard mileage rate is 55 cents per business mile traveled. Actual expenses include gas, insurance, lease payments, repairs, etc. There are stringent rules regarding how the options may be selected based upon the year the vehicle was placed into service or if it is leased. Irrespective of which option is selected, maintenance of a travel log and records of auto-related expenditures is a must. The log can be nothing more than a small notebook placed in the glove compartment that records the date, place, purpose and mileage for each business jaunt. Even if the actual expenses alternative is used, the log becomes useful, as the Service will require the trainer to divide the expenses between business and personal use of the vehicle, with only the business portion being deductible. Spending several days at the sales or elsewhere can be quite expensive. In addition to deducting the cost of airline tickets and lodging, the trainer can also
normally take a deduction for 50% of meal costs. Again, if record keeping is poor or nonexistent, it will be difficult to reconstruct the records necessary to verify these expenses months after they were incurred. For this purpose, a slightly more expansive ledger than the daily travel log may be used to record the various outlays made in connection with all business trips. Entertainment: While many conditioners meet their clients almost exclusively either on the backstretch in the morning or the paddock in the afternoon, others see the value in entertaining owners and potential owners “off premises” with a morning on the golf course or a night on the town. Within reason and limits, the expenses related to these outings could prove to be a fertile area for business deductions. The rules, however, are very specific and must be adhered to quite carefully. There are two types of deductible entertainment expenses, the criteria for
which mimic the general business expense standard. An ordinary expense is one that is common and accepted in the applicable field of business. A necessary expense is one that is helpful or appropriate to your business, but does not have to be considered indispensable. In simple terms, assuming the other criteria are met, a dinner at a fine restaurant a few miles from the track would appear to fall into one of the categories. Conversely, taking the owner and his family to Bermuda for a week would on the face of it appear far from ordinary. Further, the entertaining had to have taken place in a clear business setting or the excursion had to have had as its main focus the actual conduct of business, wherein business discussions were actually had, and the trainer had a more than general expectation of getting or maintaining business. A lunch trackside with a prospect thinking about buying horses would certainly qualify under the first test. At a restaurant, hockey game or the theater, however, the regulations require something along the lines of an active business solicitation coupled with the objective likelihood that an owner might come on board, or a current owner will either stay on board or even increase the amount of horses entrusted to the trainer. Assuming that the above tests are met, and further that the Service doesn’t view the entertaining as particularly lavish or extravagant, the trainer can generally deduct up to 50% of the cost of entertaining. Of course, the same caveat applies: If the trainer cannot produce receipts, invoices and memo notations sufficient to substantiate the amount spent and the purpose of each such event, the Service will have ample grounds to disallow the deductions. Bad Debt: The business of training Thoroughbreds is fundamentally a service industry predicated on credit. The trainer’s bill is prepared based upon charges incurred over the previous weeks or months. Moreover, the conditioner has possession and full responsibility for the care and maintenance of the owner’s asset: a living, breathing, roughly half-ton animal. Unfortunately, it is ISSUE 11 TRAINERMAGAZINE.com 39