Samantha tax consequences

Reference no: EM13987627

Samantha, an executive, has AGI of $100,000 before considering income or loss from her miniature horse business. Her outside income comes from prizes for winning horse shows, stud fees, and sales of yearlings. Samantha's home is on 20 acres, half of which she uses for the horse activity (i.e., stables, paddocks, fences, tack houses, and other related improvements).

Samantha's office in her home is 10% of the square footage of the house. She uses the office exclusively for maintaining files and records on the horse activities. Her books show the following income and expenses for the current year:

Income from fees, prizes, and sales		$22,000
Expenses
Entry fees		1,000
Feed and veterinary bills		4,000
Supplies		900
Publications and dues		500
Travel to horse shows (no meals)		2,300
Salaries and wages of employees		8,000
Depreciation
Horse equipment	$3,000
Horse farm improvements	7,000
On 10% of personal residence	1,000	11,000
Total home mortgage interest		24,000
Total property taxes on home		2,200
Total property taxes on horse farm improvements		800

The mortgage interest is only on her home because the horse farm improvements are not mortgaged.

a. What are Samantha's tax consequences if the miniature horse activity is a hobby?

b. If it is a business?

Reference no: EM13987627

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