Why Good Insurance Feels Like a Bad Bet

Ask most horsemen what they think about insurance, and you’ll get some variation of a groan. Whether it’s mortality insurance on a horse, liability coverage for the stable, or disability for a jockey, it feels expensive, frustrating, and often disappointing when it’s needed most.

But the horseracing world is built on risk—risk in training, in business, in ownership, and even in daily life at the track. Few industries combine so many unpredictable events with such high financial stakes. That’s why, despite the frustration, insurance plays a crucial role behind the scenes of every stable, ownership group, and racing career.

If you make a living in racing—or have enough invested in it to care—you need to understand what insurance is really for, why it often feels like a rip-off, and why it’s still necessary.

Racing Is Built on Risk

No one in the racing business needs a lecture on risk. Horses colic. Riders fall. Barns catch fire. Vehicles are in constant motion. You can work seven days a week and still have your livelihood upended by a single freak injury, lawsuit, or storm.

Here are just a few examples where insurance often plays a role:

• A young prospect breaks down in training… mortality insurance may soften the loss.

• A visitor slips and falls on your property… liability insurance defends and pays the claim.

• A jockey suffers a head injury… disability or medical insurance covers treatment and lost income.

• A truck hauling your horses is totaled… commercial auto coverage keeps business moving.

These aren’t routine. But when they happen, the costs are massive. The whole point of insurance is to transfer these rare but devastating risks away from individuals and toward insurance companies who manage large pools of risk.

Pooling Risk: What Insurance Actually Does

Insurance isn’t a scam. It’s a system: many people contribute to a pool, so that a few can be covered when disaster strikes. The insurance company sits in the middle, managing that pool.

In racing, as in other industries, the most important risks are:

• Low probability, high cost (a trailer accident or serious barn fire)

• Hard to plan for (a lawsuit from a passerby injured at the farm)

• Too expensive to self-fund (a full loss of property or a severe injury)

You don’t buy insurance because you expect to win. You buy it because you can’t afford to lose.

Insurance companies set prices based on the odds of something happening, then charge enough to cover claims, business costs, and profit. That means the expected return for the buyer is negative, but the outcome without insurance could be financially devastating.

Why It Feels Like a Rip-Off

Most racing professionals can name at least one insurance company that gave them a hard time on a claim, or jacked up premiums without warning. It feels personal. But the business model of insurance is built around financial discipline, not loyalty.

Here’s why it often feels so bad:

• The best-case scenario is no claim: You pay every month and get nothing back, because nothing went wrong. That's success, but it doesn’t feel like it.

• Claims take time: The more money at stake, the more paperwork and scrutiny. Insurance companies are trying to weed out fraud, but to the claimant, it just feels like stonewalling.

• Premiums are confusing: You paid for coverage, but there are exclusions and limits. If your policy didn’t cover a fire caused by faulty wiring—or didn’t include loss-of-use for a damaged truck—you might feel blindsided.

In racing, where people are used to solving problems fast and with grit, dealing with an insurance company’s process can feel like running through mud.

When Insurance Works Well in Racing

Despite the frustration, insurance plays a critical role in keeping racing businesses afloat. It works best when:

• Risks are clear and measurable: Like mortality insurance on horses with vet checks and appraisals.

• Policies are well-matched to real exposures: Like general liability for trainers with employees or spectators on site.

• Premiums are priced properly: Not dirt cheap (which usually means coverage is weak), but fair for the level of protection you get.

Well-run racing operations understand insurance not as a profit opportunity, but as a cost of doing business, no different from hay, feed, or payroll. It’s a tool to keep the barn running when the unthinkable happens.

When Insurance Fails in Racing

Insurance becomes a real problem in the racing industry when:

• Coverage gaps are ignored: You think you’re covered until you’re not.

• The pool is too small: Specialty coverage, like jockey disability or equine transit insurance, can become unaffordable if too few people buy it.

• Risk becomes uninsurable: Like when wildfires, hurricanes, or floods drive insurers out of entire regions.

That’s when premiums go through the roof… or insurance disappears altogether. And unfortunately, by the time a problem is widespread enough to get attention, it’s usually too late for policyholders to find alternatives.

So, What’s the Solution for Horsemen and Owners?

The goal isn’t to love insurance. It’s to understand what it’s meant to do and make sure you’re using it wisely.

Here are some tips tailored to the racing industry:

1. Insure what you can't afford to lose. If you can't replace a trailer or absorb a liability judgment, you need coverage.

2. Know what’s excluded. Read the policy—or have someone explain it. Don’t assume “full coverage” means what you think.

3. Work with agents who know racing. They’ll help tailor the policy to your actual risk, not just a generic farm or business template.

4. Update coverage annually. Horses change, barns expand, and risk shifts. Old policies may not fit your current situation.

The Bottom Line: Hate It or Not, Insurance Is Part of Racing Life

In racing, you deal with unpredictability every day. You know you can train perfectly and still lose. Insurance is no different. You can pay faithfully for years and feel like you got nothing. But when something goes wrong—and it will eventually—you’ll wish you had it in place.

The payout may not feel generous. The paperwork might be frustrating. But insurance gives you the financial runway to survive the unexpected, and in a high-risk business like racing, that can be the difference between rebuilding and walking away.

Don’t buy it to come out ahead. Buy it so one bad day doesn’t take you out of the game.

10 Common Tax Mistakes Horse Racing Business Owners Make

Prepping this Sharp Azteca filly for the Iowa Fall Sale. Photo by Kristyn Whitican.

Owning or operating a business in the horse racing industry comes with unique financial opportunities and tax challenges. From breeding and racing to sales and training, the IRS views these activities through the lens of business compliance, and mistakes can be costly.

In working with business owners over the years, I’ve noticed a series of common tax mistakes or misunderstandings

1. Failing to File Federal Tax Returns

Many owners assume that if their horse-related business passes through income to them personally, like in the case of an LLC or partnership, they don’t need to file a separate tax return for the entity. That’s incorrect.

Partnerships and S corporations are required to file their own returns (Forms 1065 and 1120-S, respectively), even if no tax is due. Missing these filings can result in steep penalties—$220 per partner per month (as of 2025) for each month the return is late.

2. Not Depreciating Horses or Assets Properly

Depreciation is a powerful tax tool in horse operations when used correctly. Racehorses, equipment, trailers, and even fencing can often be depreciated under the MACRS system, typically using 3, 5, or 7-year schedules.

Depreciation amounts can vary by year depending on the convention chosen, along with any accelerated depreciation taken. Failing to account for depreciation can result in overpayment or underpayment of income taxes.

3. Deducting Loan Payments Instead of Loan Interest

Loan payments are not fully deductible business expenses. Only the interest portion of each payment qualifies as a deduction. Many owners mistakenly deduct the full payment amount, not realizing that the principal portion is considered a balance sheet transaction, not an expense.

In addition, assets purchased with loans, like trucks or breeding stock, should be depreciated over time, not deducted in full through loan payments. Mixing up these items leads to inaccurate bookkeeping and overstated deductions.

4. Not Tracking Basis in Horses and Equipment

When selling a horse, trailer, or other business asset, your gain or loss is calculated based on its adjusted cost basis: what you paid, minus depreciation taken. Owners often lose track of the original purchase price, capital improvements, or depreciation schedules, making it difficult to report the sale correctly.

This can lead to overpaying taxes on a gain or underreporting income, both of which carry financial and legal risk.

5. Commingling Personal and Business Expenses

Paying for hay, vet bills, or travel from a personal account creates a bookkeeping headache and a risk of losing deductions. The IRS expects clear separation between business and personal activity, and commingled accounts weaken the credibility of your deductions.

Setting up a dedicated business bank account and using it exclusively for horse business activity is a key step in protecting your deductions. Additionally, if you have multiple businesses, each business should have its own account.

6. Deducting Personal Expenses as Business Expenses

Some owners believe that anything remotely related to horses is deductible, but the IRS draws a hard line: personal expenses are not deductible, even if they relate to an industry you're involved in.

Examples of nondeductible items include:

• Clothing unless it’s a uniform required for work.

• Personal meals or entertainment not tied to a legitimate business activity.

• Family travel to races or sales with no business purpose.

• Rent expense for your residence if you don’t maintain a tax home elsewhere.

Misclassifying these items results in underpayment of taxes and could create major problems in an audit.

7. Missing Out on Deductible Travel and Meals

On the flip side, many owners fail to deduct legitimate travel expenses because they lack proper documentation. Travel to race meets, auctions, breeding farms, or training facilities may be deductible—but only if:

• The trip has a clear business purpose

• Mileage logs or receipts are kept

• Meal expenses follow the IRS 50% deduction rule

Without these details, even legitimate deductions can be disallowed.

8. Not Tracking Expenses By Location

For horsemen who operate in multiple states or frequently cross state lines for races and sales, tracking income and expenses by location is essential. Many states require nonresident income tax filings based on the location where income is earned, such as race winnings.

Failing to allocate income and expenses geographically can lead to:

• Overpaying in one state

• Underpaying in another

• Or worse, triggering penalties for failure to file nonresident returns

9. Overlooking State and Local Tax Obligations

Each state (and sometimes city) has its own set of rules, including licensing fees, business taxes, and withholding requirements. Horse owners may:

• Race in one state

• Breed and sell in another

• Reside in a third

If they don’t file the proper returns in all applicable states, they may miss out on deductions or overpay tax in their home state. It can also make audits more complicated, especially when winnings show up on 1099-MISC or W-2G forms issued across state lines.

10. Failing to Make Estimated Tax Payments

Racing and breeding income is typically non-wage income, meaning no taxes are withheld. This creates a common cash flow trap: you spend the income and forget to set aside money for taxes.

The IRS expects you to pay taxes as you go, usually through quarterly estimated payments. Missing those deadlines can trigger:

• Underpayment penalties

• Interest charges

• A large surprise balance due in April

Smart tax planning involves forecasting earnings and making timely quarterly payments.

Final Thoughts

The horse racing industry is exciting, but it’s also complex, and from a tax standpoint, unforgiving. The key to avoiding these costly mistakes is to treat your operation like a real business: with proper records, intentional planning, and professional support.

Whether you’re a trainer, breeder, owner, or jockey, working with a financial advisor and tax professional who understands the industry can keep you compliant, and more importantly, profitable.

Is Your CPA Just a Glorified Tax Preparer?

Tonalist colt out of Quinte Road (Quality Road). Photo by Kristyn Whitican.

Why Horsemen and Jockeys Need Real Tax Planning - Not Just a Tax Return

Every year, you hand over your receipts, 1099s, and income records to your CPA or tax preparer. A few weeks later, your return is done, and you move on. But let’s be real:

Is your CPA actually helping you make smart tax decisions that lower your taxes over time, or are they just filling out the forms based on what already happened?

That’s a critical difference. I speak to people regularly who think a “write-off” saves them on taxes dollar for dollar, don’t understand the difference between depreciation and a regular expense, and who believe that business loan payments are deductible (rather than just the interest). These misunderstandings tell me that their CPA/tax preparer is not having active tax conversations to facilitate tax-related business decisions.

And for people in the racing world, where income can be unpredictable, business expenses can be complex, and long-term financial security has to be built manually, it’s a difference that could cost you thousands.

Let’s break it down.

What CPAs and EAs Actually Do…And What They Don’t

If you work with a CPA (Certified Public Accountant), you’re working with someone who’s licensed to handle tax and accounting work. They pass rigorous state exams, meet continuing education requirements, and are often experts in financial reporting, audits, and tax compliance.

An EA (Enrolled Agent) is a tax professional licensed by the IRS who has passed a comprehensive test on individual and business tax returns or has worked directly for the IRS. They are also allowed to represent clients before the IRS in audits and appeals.

Both CPAs and EAs are well-versed in reporting what already happened. They’re trained to fill out the tax forms correctly and keep you in compliance.

But most are not helping clients make proactive, forward-looking decisions that lower their tax burden over time.

Tax Prep vs. Tax Planning: What You Really Need

• Tax preparation is a reactive service. It tells the story of the past.

• Tax planning is proactive. It helps you write a better story for the future.

Most CPAs are focused on filing accurate returns and minimizing last year’s taxes. But what about this year? What about retirement? What about a good sales year that might bump you into a higher bracket?

If you want to lower your total lifetime tax bill, you need help making smart tax decisions every year, not just reporting what has already happened.

Real Tax Decisions Horsemen Should Be Making… But Often Aren’t

1. Should I set up a retirement account to lower my tax bill?

If you’re self-employed, you can often save tens of thousands in taxes by contributing to a retirement account. A Solo 401(k) or SEP IRA can dramatically reduce your taxable income.

Example:
A trainer with a $200,000 profit could contribute $30,000 or more into a Solo 401(k). That contribution reduces their taxable income to $170,000. Assuming they are in the 24% federal tax bracket, that means a tax savings of roughly $7,200. If part of that contribution also reduces self-employment tax, the total savings could approach or exceed $9,000 depending on the specifics. It's a powerful way to keep more of your earnings while saving for the future.

But if your CPA isn’t running projections or asking about this before year-end, you’re likely missing out.

2. Should I time income or expenses differently this year?

Racing income is rarely steady. One year you might sell a top 2-year-old or ride a stakes winner. The next year, the barn is quiet. Timing matters.

• In a high-income year, you might want to prepay expenses (feed, supplies, vet bills) before year-end.

• In a low-income year, it might be smart to harvest investment gains at 0% capital gains tax, or do a Roth IRA conversion while your tax rate is low.

Your CPA probably isn’t tracking this throughout the year. A tax-focused planner does.

3. Is my rental property helping or hurting my tax situation?

Many horsemen and jockeys own rental property. It might be a former home, a side investment, or something close to a track. But here’s what most people don’t know:

• If your income is above $150,000, you likely can’t deduct rental losses due to passive activity loss rules.

• Those losses get carried forward until you sell the property or your income drops below the threshold.

4. How will depreciation recapture impact the sale of my business assets?. 

When you sell a rental, broodmare, or farm equipment, the IRS wants back a portion of the tax benefit you got through depreciation, and taxes it up to 25%.

Example (Rental Property):
You depreciated $70,000 on a rental property over 10 years. When you sell, you might owe around $17,500 in federal taxes just from depreciation recapture, even if you made no actual gain on the sale.

Example (Broodmare):
Suppose you purchased a broodmare for $100,000 and depreciated $60,000 over several breeding seasons. If you later sell her for $80,000, you may owe taxes on the $60,000 of depreciation recapture, even though the overall transaction appears to be a loss.

Example (Farm Equipment):
You bought a tractor for $50,000 and claimed $40,000 in depreciation. When you sell it for $30,000, the IRS can tax the $30,000 of sale proceeds at up to 25%, even though the sale looks like a loss.

If your CPA doesn’t walk you through these scenarios before selling, that tax bill can blindside you.

5. Should I harvest losses or gains in my investment account?

If you have taxable investments, you may be able to make strategic moves each year:

• Tax-loss harvesting: Selling losing positions to offset gains

• Tax-gain harvesting: Realizing gains in low-income years at the 0% capital gains rate

If you had a down year riding or training, that might be a perfect time to realize some gains and reset your cost basis.

A planner with a tax focus helps you decide what to do now to avoid higher taxes later.

5. Am I making the right estimated tax payments?

Horsemen and jockeys often receive income that doesn’t have taxes withheld, including purse winnings, training fees, breeding income, and sales proceeds. If you’re not making the right quarterly estimated tax payments, you could face penalties and a big surprise come tax time.

Example:
A jockey receives $150,000 in earnings and doesn’t make estimated payments. If they owe $35,000 in taxes, they could also face underpayment penalties from the IRS and their state.

A tax-focused planner can calculate what you owe each quarter and help you stay compliant, avoiding penalties and managing cash flow more effectively.

Why Isn’t This Happening?

Because CPAs and EAs are usually hired to do one thing: Prepare your taxes.

They often work under intense time pressure, especially during filing season. They’re focused on compliance, not strategy. That’s not a criticism. It’s just how the industry is built.

If you think your CPA is giving you year-round tax advice, they probably aren’t.

What You Actually Need: A Tax-Focused Financial Planner

A financial planner with tax expertise doesn’t replace your CPA, they work with them. They fill in the gaps and help you look ahead.

They:

• Run tax projections in the summer and fall

• Help you plan for high-earning or low-earning years

• Guide you through retirement plan contributions

• Advise on rental property sales and depreciation recapture

• Coordinate investment strategies like loss and gain harvesting

• Calculate estimated tax payments so you avoid surprises

They help you make real decisions that reduce your tax bill, not just report the results.

The Bottom Line

If your CPA is just preparing your taxes, you might be missing out on the biggest opportunities to lower what you owe.

Tax preparation is important.

But tax planning is powerful.

And in the horse business, where your income and career can shift from year to year, you need someone who helps you take control.

Want help making smart tax decisions that keep more money in your pocket?
Let’s talk. You don’t have to go it alone—especially when the right plan can mean thousands saved every year.

Is Your Business Ready to Fund Your Retirement?

Baddest Good Boy before the Razorback Handicap, Feb 23, 2025. Photo by Christa Jordan.

For small business owners in the thoroughbred racing industry—jockeys, trainers, breeders, and other horsemen—planning for retirement often falls to the bottom of a long list of priorities. However, failing to create a strategy for your financial future could leave you without the retirement you deserve after a lifetime of hard work. The truth is, there are only two paths to funding retirement for small business owners:

1. Build and sell the business to fund retirement.

2. Extract income from the business during its operation and invest it elsewhere.

Let’s explore these options and why the second scenario—extracting and investing business profits—is the most viable for nearly all small businesses in the horse industry. We’ll also delve into actionable steps you can take today to secure your financial future.

The Myth of Selling Your Business for Retirement

Many business owners hold onto the idea that they’ll eventually sell their business and use the proceeds to retire comfortably. While this is a possibility for some, the reality is much less certain for small businesses in niche industries like thoroughbred racing. Here’s why:

• Limited Market: Unlike larger, scalable businesses, a training or breeding operation often depends heavily on the owner’s skills, relationships, and reputation. Once you step away, much of the value disappears. Buyers may be hesitant to invest in a business that lacks inherent, transferable value beyond the current owner. And jockeys have nothing to sell as their business is literally themselves.

• Unpredictable Valuation: Assets like horses, equipment, and facilities have highly variable values tied to market conditions, making it difficult to rely on a sale as your retirement plan. The worth of these assets can fluctuate based on everything from age and economic trends to the success of particular racing seasons.

• Buyer Scarcity: Finding a buyer who is both capable and willing to take over your business can be challenging, especially in a specialized field like thoroughbred racing. The niche nature of this industry limits the pool of prospective buyers who understand its unique demands.

If your retirement plan hinges on selling your business, you’re taking a significant financial gamble. While preparing your business for sale is always wise, the reality is that the odds are against you.

The Practical Path: Extracting Income and Investing for Retirement

For most small business owners, including those in the horse industry, the second scenario—extracting profits from the business and investing them—is the only reliable way to build a retirement fund. This strategy ensures that you’re not dependent on uncertain factors like market timing or finding a buyer for your business. Here’s why this approach is essential:

1. Control Over Savings: By setting aside a portion of your profits regularly, you take charge of your financial future. You don’t have to rely on specific external events or market conditions to secure your retirement. Instead, you build a steady, predictable path toward financial independence.

2. Diversification: Investing outside your business spreads your risk across different assets, such as stocks, bonds, and real estate. This diversification shields your retirement savings from industry-specific downturns, such as a bad racing season or unexpected veterinary expenses.

3. Compounding Growth: The earlier you start investing, the more time your savings have to grow through the power of compounding. Even small, consistent contributions can grow into significant retirement assets over time. For example, investing $500 per month at a 7% annual return can grow to nearly $600,000 in 30 years.

4. Flexibility: Unlike relying on a business sale, building an investment portfolio gives you financial flexibility. You can retire on your terms without needing to find a buyer for your business. This flexibility is especially valuable in an industry as unpredictable as thoroughbred racing.

5. Peace of Mind: Knowing that your retirement doesn’t hinge on selling your business or achieving a specific profit margin allows you to focus on running your business without added stress.

Why This Matters in the Equine Industry

The horse industry is unique, but it faces many of the same challenges as other small business sectors. Here’s why extracting and investing profits is especially critical for professionals in thoroughbred racing:

• High Overhead: Maintaining horses, paying staff, and covering operational expenses often leaves little room for savings unless proactively managed. Strategic financial planning is essential to ensure day-to-day costs don’t entirely consume your profits.

• Irregular Income: Racing earnings, breeding fees, and other revenues can be inconsistent, making it even more critical to prioritize saving during profitable periods. A disciplined approach to saving ensures that lean times don’t derail your retirement goals.

• Physical Demands: Careers in thoroughbred racing are physically taxing, and many horsemen and jockeys are forced to retire earlier than in other industries due to age or injury. A shorter career span means less time to save and invest, making it even more crucial to start early. Of course, you may be able to start a second career, but do you want to be forced into that?

• Economic Sensitivity: The horse industry is deeply affected by economic trends, making diversification outside the industry a vital component of a robust retirement plan.

Don’t Let Your Business Be Your Only Plan

If you’re not consistently saving a portion of your business profits and investing them for the future, you’re essentially betting your retirement on a high-risk, low-probability scenario. Instead, take these steps to ensure your business supports your retirement:

1. Assess Your Finances: Determine how much income your business generates and identify areas where you can reduce expenses to free up money for retirement savings. A detailed financial review can uncover opportunities to boost profitability.

2. Create a Savings Plan: Commit to saving a specific percentage of your profits each month or quarter. Automating this process can help make it a consistent habit. For instance, allocate a specific portion of your earnings to a dedicated retirement account.

3. Invest Wisely: Work with a financial advisor like me to build a diversified investment portfolio tailored to your goals, timeline, and risk tolerance. Your advisor can help you navigate complex investment options.

4. Plan for the Unexpected: Ensure you have an emergency fund and appropriate insurance coverage to protect your financial stability if something goes wrong. This safety net allows you to maintain your retirement savings even in tough times.

5. Monitor and Adjust: Regularly review your financial plan and make adjustments as needed. Life changes, industry shifts, and market conditions can all impact your retirement strategy, so staying proactive is key.

The Bottom Line

For thoroughbred racing professionals, the key to funding retirement lies in proactively saving and investing a portion of your business profits. By starting now, you can build a financial foundation that ensures you’ll be able to enjoy retirement, whether your career spans decades or just a few years. Don’t wait for the perfect buyer or hope for a windfall—take control of your retirement today.

With the right plan in place, you can achieve financial independence and enjoy a comfortable retirement, regardless of the unpredictable nature of the horse industry. Start planning today to ensure a stable and rewarding future.

Avoiding Tax Underpayment Penalties in the Thoroughbred Industry

Photo by Erik MacLean

The racing industry has some of the highest highs and the lowest lows of any vocation. For most people in the industry, their business profits and losses tend to track closely with those emotional highs and lows. A win at the track or a successful sale can bring a rush of euphoria, while setbacks can feel devastating. However, when it comes to your taxes, riding that emotional rollercoaster is a risky strategy.

The Challenge of Early-Year Tax Projections

In other posts, I’ve emphasized the importance of staying on top of your business profits and losses and regularly updating your tax estimates so you pay the right amount of taxes at the right time. But let’s face it: for many in the racing and breeding business, projecting a realistic full-year estimate by April 15th—the deadline for your first quarterly estimated payment—is no small feat.

For example, if you’re in the breeding business like I am, most of your income arrives in the second half of the year, with the yearling sales kicking off in July and the weanling sales wrapping things up in November. That kind of income pattern makes early-year tax projections especially challenging.

The Consequences of Underpaying Taxes

Unfortunately, getting your estimated tax payments wrong can have serious consequences. If you don’t pay in enough throughout the year, you’re not only facing a large tax bill when you file but also potential penalties for underpayment. That’s an added expense no one wants.

The IRS Safe Harbor Rule: Your Safety Net

Fortunately, there’s a way to protect yourself: the IRS safe harbor rule. This rule provides a safety net to help you avoid underpayment penalties, and it comes in two forms:

Option 1: The Prior-Year Safe Harbor

The first method relies on your previous year’s tax liability. If you pay in at least 100% of the total tax you owed last year (110% if your adjusted gross income was over $150,000), you’ll meet the safe harbor requirements and avoid penalties, even if your actual tax liability is higher this year.

For many in the racing industry, where income can be unpredictable, this is often the safer and more reliable option. It provides a fixed target and removes some of the guesswork from the equation.

Option 2: The Current-Year Safe Harbor

The second method is based on your actual income for the current year. If you calculate your tax liability in real time and ensure you’ve paid at least 90% of what you’ll owe by year-end, you’ll also meet the safe harbor requirements.

While this method can save money if your income is significantly lower than the prior year, it requires frequent updates to your income projections and tax estimates—a tall order in an industry with so many variables.

Why the Prior-Year Safe Harbor Often Wins

Given the variability in racing and breeding income, the prior-year safe harbor method is often the better choice. It’s predictable and gives you a concrete benchmark to aim for, regardless of how your year unfolds. While it might result in slight overpayment if your income drops, it’s a small price to pay for the peace of mind that comes with avoiding penalties.

Mixed-Income Households: Special Considerations

It’s important to note that the safe harbor rule applies to your combined household tax liability, even if your spouse has a W-2 job with tax withholding.

While W-2 income generally has taxes withheld throughout the year, those with self-employment or variable income—like many in the racing industry—often have less predictable earnings and no automatic withholding. In this case, the taxes your spouse’s employer withholds may not be enough to cover your total household liability.

By using the safe harbor rule, you can ensure that your combined tax payments meet the required thresholds, reducing the risk of penalties. This makes choosing the right safe harbor method even more critical for couples with mixed income types.

The Bottom Line

Staying compliant with your tax obligations doesn’t have to feel like trying to pick the winning horse in a crowded field. By understanding and leveraging the IRS safe harbor rule, you can avoid costly penalties and keep your focus on what matters most: growing your business and enjoying the ride.

Evaluate your situation carefully and choose the safe harbor method that works best for you. Just like in racing, preparation and strategy are the keys to long-term success. With the right approach, you’ll ensure that both your financial and professional journeys are on the right track.

Lastly, keep in mind that this article primarily addresses this topic at the federal level. Individual states will have their own tax rules. Some states make every effort to match their tax rules to federal tax rules but many states do not.

If your tax-preparer, accountant, CPA, or financial advisor is not proactive in helping you navigate the financial aspects of your thoroughbred business, reach out to me at Derek@TrophyPointFP.com.

Are Hidden Tax Penalties Inflating Your Tax Bill?

The author visiting Mind Your Mo in training at the Thoroughbred Center. Photo by Kristyn Whitican, Lexington, KY.

If you’re a racing jockey, you know all too well how unpredictable your income can be. One week, you’re earning a big payday from a major win, and the next, you might have little to no income. This inconsistency makes it especially tough to know how much to pay in estimated taxes, which can lead to unexpected penalties that quietly add to your tax bill.

Are you unknowingly paying these penalties?

Why Do Underpayment Penalties Exist?

The IRS requires taxes to be paid throughout the year, not just at tax time. For salaried employees, this happens automatically through employer withholding. But as a jockey, most of your income comes from riding fees, purse winnings, and endorsements, which often don’t have tax withholding. Instead, you’re expected to make quarterly estimated tax payments.

If you underpay your estimated taxes during the year, the IRS may impose a penalty—even if you pay your total taxes owed when you file your return. These penalties exist to ensure taxpayers keep up with their obligations, but for someone like you, whose income fluctuates wildly, meeting the quarterly deadlines can be a significant challenge.

How Underpayment Penalties Hide in Your Tax Return

Underpayment penalties are calculated using IRS Form 2210, the “Underpayment of Estimated Tax by Individuals, Estates, and Trusts.” However, this form often gets buried in hundreds of pages of tax forms and documents, making it easy to overlook.

What’s worse, the penalties themselves are usually rolled into the “amount due” on your tax return, without any obvious explanation. That means you could be paying these penalties year after year without even realizing it. The result? A tax bill that’s higher than it should be.

Why It’s Tough to Get Estimated Tax Payments Right as a Jockey

The racing industry is all about highs and lows. Your income depends on your performance, the quality of horses you ride, and the frequency of races you participate in. Early in the year, income might be low, while the summer and fall bring big purses and riding opportunities.

This unpredictability makes it nearly impossible to know how much to pay in estimated taxes at the start of the year. If you pay too little, penalties add up. If you pay too much, you’re parting with cash that you might need for travel expenses, gear, or even healthcare.

How to Find Out If You’re Paying Penalties

To see if you’re being penalized, ask your tax preparer to include a copy of IRS Form 2210 with your return. This form breaks down how much you’re being charged for underpayment penalties. If you prepare your own taxes, check your software’s reports section for a detailed breakdown of penalties and interest.

Understanding whether you’re paying penalties is the first step to fixing the problem. By knowing where your tax dollars are going, you can start to take control of your finances.

What’s Next?

If you’ve been paying underpayment penalties, don’t worry—there’s a solution. The IRS safe harbor rule can help you avoid penalties, even if your estimated payments aren’t perfect. In the next article, we’ll explain how the safe harbor rule works and how it can provide peace of mind for jockeys with unpredictable income.

Stay tuned to learn how to take the reins on your taxes and avoid unnecessary penalties!

Lessons from a Dinner Table Debate: What Jockeys and Horsemen Can Learn About Financial Priorities

At a recent dinner with friends, I found myself entertained by an unexpectedly passionate debate about car maintenance. The topic? How often you should check your car’s oil.

Friend #1’s approach: She checks her oil before every drive, just in case.

Friend #2’s approach: She never checks her oil and relies entirely on the dealer’s service department to ensure everything is in order. From her perspective, the worst-case scenario—an engine blowout—is covered by warranty.

For ten minutes, they argued their cases: vigilance versus trust in systems. I laughed, not because the debate was trivial, but because both perspectives have merit (also because it was funny that they just thought each other's position was absurd). The truth is, their choices reflect personal priorities, preferences, and opportunity costs.

How Does This Relate to the Racing Industry?

As a jockey, trainer, or horse owner, your financial decisions often mirror this debate. Some of you are "check the oil every drive" types: you meticulously monitor your income, expenses, and your horses! Others may take a more hands-off approach, trusting professionals to guide you.

Neither approach is inherently wrong. The key, however, is making a deliberate decision.

Breaking Down the Priorities

The Proactive Approach

Friend #1’s method works because she values control and precision. She may enjoy the hands-on aspect of car maintenance or simply prefer the lower cost of buying a used car and maintaining it herself. In the racing world, this might look like:

• Budget-conscious trainers who carefully track every expense.

• Jockeys who invest time learning about personal finance to manage their earnings effectively.

• Owners who strategize every purchase and mating and keep a close eye on their stable’s cash flow, profitability, and ability to pay upcoming expenses.

This approach requires diligence but can help mitigate risks and stretch your resources further.

The Delegated Approach

Friend #2 represents a different mindset. She’s willing to pay a premium for peace of mind, trusting her dealer’s warranty and service plan. Her time is better spent elsewhere, and she’s comfortable with the trade-off. In your world, this might look like:

• Relying on financial advisors to manage your investments and taxes.

• Hiring experienced staff to oversee day-to-day stable operations.

• Choosing top-tier service providers to ensure your horses get the best care.

This approach can save time and stress, allowing you to focus on your core strengths—whether that’s riding, training, or business development.

Opportunity Costs in Action

Every decision has an opportunity cost. For Friend #1, the time spent checking oil could be used elsewhere. For Friend #2, the added expense of a new car and maintenance plan might reduce her financial flexibility. Similarly, in the racing industry:

• Time spent on detailed financial management could take away from training or competing. 

• Financial and tax mistakes and misunderstandings can be costly.

• Outsourcing everything could lead to missed opportunities or higher costs.

The key is finding the balance that works for you.

Which Approach Works Best for You?

Your financial strategy, like your approach to horse care, should reflect your unique circumstances:

• Are you comfortable with details, or do you prefer to delegate?

• Do you have the time and interest to manage your finances closely?

• What trade-offs are you willing to make to focus on your priorities?

Final Thoughts

Whether you’re a "check the oil every drive" type or a "trust the warranty" person, the goal is the same: keeping your financial engine running smoothly. By understanding your priorities and making intentional choices, you can build a strategy that supports your success in the racing industry and beyond.

So, which type are you? And how does it influence your approach to managing your career and finances?

As you think about this topic. If you come to the conclusion that you want an experienced financial planner on your side of the table, reach out to me at Derek@TrophyPointFP.com.

Jockeys: 7 Tax Moves to Consider in 2025

As a horse racing jockey, managing your finances efficiently is critical to maintaining long-term financial success. With the unique income structure and expenses involved in your profession, careful tax planning can help you maximize earnings and minimize liabilities. Here are essential tax moves jockeys should consider for 2025.

1. Develop a Bookkeeping Process or Hire a Bookkeeper

Accurate and consistent bookkeeping is the foundation of good business and tax planning. Jockeys often have numerous business-related expenses, including travel, lodging, and equipment. Without proper tracking, it’s easy to miss valuable deductions and fail to understand your true earnings.

Why It Matters:

• Helps you understand your financial health.

• Aids accurate tax filings.

• Prevents missed deductions and minimizes audit risks.

Action Step:

Invest in accounting software like QuickBooks, tailored for small business owners, or hire a professional bookkeeper. Additionally, consider maintaining separate bank accounts for personal and business finances to streamline the bookkeeping process.

2. Regularly Update Tax Projections

Tax liabilities can fluctuate based on race winnings, sponsorship income, and other variables. Regularly updating tax projections ensures you’re prepared for estimated tax payments, prevents unexpected liabilities, and allows for better financial planning.

Why It Matters:

• Helps avoid penalties for underpayment of estimated taxes.

• Enables smarter business and financial decisions.

• Helps forecast cash flow for business and personal goals.

Action Step:

Schedule quarterly meetings with your tax advisor to analyze income changes and adjust estimated payments. Use these projections to determine optimal times for major purchases, contributions to retirement accounts, or other financial moves.

3. Consider Converting to an S Corporation

Operating as a sole proprietor may result in higher self-employment taxes. Converting to an S Corporation can reduce these taxes by enabling you to pay yourself a reasonable salary while taking the remaining income as business distributions, which are not subject to FICA taxes.

Why It Matters:

• Saves on self-employment taxes (Social Security and Medicare).

• Provides a more tax-efficient way to structure income.

Action Step:

Consult with a tax professional to assess whether S Corporation status is beneficial for your business. They will also guide you through the process and ensure compliance with IRS guidelines regarding reasonable compensation.

4. Create a Solo 401(k)

A solo 401(k) is an excellent retirement savings vehicle for self-employed individuals like jockeys. It allows higher contribution limits compared to traditional IRAs, enabling significant tax-deferred savings.

Contribution Limits for 2025:

• Employee Contribution: Up to $23,500 ($30,000 if age 50+).

• Employer Contribution: Up to 25% of net earnings, with a combined limit of $70,000.

Establishment Deadline:

• The plan must be established by December 31, 2025, but contributions can be made up until your tax filing deadline, including extensions.

Action Step:

Speak with your financial planner to establish a solo 401(k) and determine the appropriate contribution levels based on your earnings.

5. Make Roth IRA Contributions if Eligible

Roth IRAs offer tax-free growth and withdrawals in retirement, making them a valuable tool for jockeys who qualify under income limits. Additionally, contributions for 2024 can still be made until April 2025, providing extra flexibility.

Key Details:

• Income Limits for 2025: Single filers earning up to $150,000 can make full contributions, with a phase-out of up to $165,000. For married filers, the phase-out range is $236,000 to $246,000.

• 2024 Contribution Deadline: April 15, 2025.

Action Step:

Determine your eligibility and contribute the maximum amount to a Roth IRA if possible. If you exceed the income limits, consider a backdoor Roth IRA contribution by funding a traditional IRA and executing a Roth conversion.

6. Tax Loss Harvesting in Brokerage Accounts

If you hold investments in taxable brokerage accounts, tax-loss harvesting can help you reduce your tax bill. This strategy involves selling underperforming investments to offset realized capital gains or up to $3,000 of ordinary income annually. Unused losses can be carried forward to future tax years.

Why It Matters:

• Lowers your current tax liability.

• Improves the after-tax performance of your investment portfolio.

Action Step:

Work with your financial advisor to review your portfolio before year-end. Identify opportunities to sell underperforming assets strategically while maintaining a balanced investment strategy.

7. Tax Gain Harvesting in the 0% Long-Term Capital Gains Bracket

If your income is low enough to qualify for the 0% capital gains tax bracket, you can sell appreciated assets without incurring taxes on the gains. For 2025, this bracket applies to single filers with taxable income up to $48,350 ($96,700 for married filing jointly).

Why It Matters:

• Realizes gains tax-free at the federal level.

• Resets the cost basis, reducing future tax liabilities.

Action Step:

Monitor your income levels and consult with your tax advisor to determine if you qualify for tax gain harvesting. This strategy can be especially beneficial in years with lower-than-usual earnings.

Final Thoughts

For horse racing jockeys, proactive tax planning is an essential part of financial success. Implementing these strategies in 2025 will not only help you minimize your tax burden but also position you for long-term financial growth. From creating a robust bookkeeping system to leveraging advanced tax strategies like S Corporations and tax gain harvesting, the right moves can make a significant difference.

As a financial planner who focuses on working with jockeys, I’m here to help you navigate these complex decisions. Let’s create a customized tax and financial strategy that fits your unique needs. Contact me today to get started on securing your financial future.

529 Education Savings Accounts: What Jockeys Should Know About Planning for the Future

For horseracing jockeys, education savings might not seem like a top priority—especially in the earlier stages of your career when your focus is on building your reputation and achieving success on the track. However, as your career grows, so do your opportunities to plan for the future, including the education of your children or other loved ones.

529 education savings accounts are a flexible, tax-advantaged way to prepare for future educational costs. Even if you’re not yet thinking about college or trade school, understanding how these accounts work can help you make smart financial decisions down the road. Let’s address some common questions and concerns about 529 plans, especially for jockeys who often face unique financial and career challenges.

1. What if my child gets a scholarship?

As a jockey, you know the value of hard work and dedication—and your child might achieve their own success in the form of a scholarship. If this happens, the money you’ve saved in a 529 account won’t go to waste. You can withdraw an amount equal to the scholarship without facing the usual 10% penalty for non-qualified expenses. You’ll only owe income taxes on the earnings portion of the withdrawal.

Alternatively, you can keep the money in the account for future use, such as graduate school or other educational needs. This ensures that the funds you’ve set aside continue to work for your family.

2. What if they don’t go to college at 18?

Many jockeys know that life doesn’t always follow a traditional timeline. If your child isn’t ready for college right after high school, there’s no need to worry. 529 accounts don’t have an expiration date, so the money can stay in the account until it’s needed. This flexibility gives your family time to figure out the right path, whether it’s a gap year, pursuing a professional career, or even joining the horseracing industry themselves.

3. What if they never go to college?

The question of “what if they never go to college” comes up often, especially for jockeys whose children might consider following in their parent’s footsteps within the horseracing world. While 529 plans are primarily designed for higher education, they can also be used for other qualifying educational opportunities, such as vocational or trade schools, apprenticeships, and eligible certificate programs.

If none of these options apply, you can change the account’s beneficiary to another family member, such as a sibling or even yourself if you want to pursue your own education or certifications later in life. If no one ends up using the funds for education, you can withdraw the money for other purposes, although earnings will be subject to income tax and a 10% penalty.

4. What if there’s money left over?

In some cases, families save more than what’s needed for education. If this happens, the leftover funds can remain in the account for future educational needs, such as graduate school. Starting in 2024, the IRS allows certain unused 529 funds to be rolled into a Roth IRA for the beneficiary, provided the account has been open for at least 15 years and other conditions are met. This creates an opportunity to repurpose the savings for retirement.

5. What if one child doesn’t need the money, but another does?

For jockeys with multiple children, this is a common question. Fortunately, 529 accounts allow for easy beneficiary changes among qualifying family members. If one child doesn’t use the funds, you can transfer the account to a sibling, cousin, or even a grandchild. This flexibility ensures the money you’ve saved continues to benefit your family.

6. What if my child pursues a career instead of education?

If your child decides to follow in your footsteps in the horseracing industry or pursue another professional career that doesn’t require a college education, the 529 funds can still be used in creative ways. For example, some vocational training programs may qualify as eligible expenses. If not, you could withdraw the funds for other purposes, with the understanding that taxes and penalties will apply to earnings.

7. Why should I think about this now?

Early in your career as a jockey, your focus might be on managing race schedules, securing mounts, and building financial stability. But as your career advances and your financial position strengthens, it’s important to think about long-term planning. A 529 account is a great way to ensure that your children enter adult life better off than you were—whether it involves college, trade school, or other educational paths.

Planning for Success Off the Track

As a jockey, you know the value of preparation and strategy. Just as you plan your races, planning your finances is crucial for long-term success. A 529 education savings account is one tool that can help you build a legacy for your family, no matter what paths they choose.

Whether you’re just starting your career or riding at the peak of your success, it’s never too early—or too late—to explore your financial options. If you have questions about 529 plans or other strategies to secure your family’s future, I’m here to help. Let’s work together to create a plan that works for you, both on and off the track.

5 Things I Wish Jockeys Knew About Money

As a financial advisor who works with horseracing jockeys, I’ve seen the unique challenges you face both on and off the track. Your career demands incredible skill, discipline, and sacrifice, but it also comes with financial and physical risks. Here are five essential lessons to help you take control of your financial future:

1. It’s Not a Forever Career

Jockeying is a short-lived profession for most. The physical demands, weight requirements, and injuries mean that few can maintain a long career in the saddle. This makes financial planning critical. While you may be earning well today, you need to treat those earnings as a limited resource. Build savings, invest wisely, and prepare for the day when you’ll need to transition to a life outside of racing.

2. You’re in a Race Against Time

Your career doesn’t just end early—it’s grueling while it lasts. Long hours, constant travel, and the ever-present risk of injury mean you need to start putting money away immediately. Compounding works in your favor the sooner you begin. Think of every dollar saved as a seed that can grow into a larger financial safety net for your future. Don’t wait until your best earning years are behind you to start thinking about retirement.

3. Injuries Are a Question of When, Not If

As a jockey, injuries aren’t hypothetical—they’re inevitable. That’s why you need a plan in place before an accident sidelines you.

• Savings: An emergency fund can help cover expenses when you’re unable to ride.

• Disability Insurance: This is a must-have. It provides income when you’re unable to work.

• Support System: Identify people who can help care for you during recovery and ensure your financial obligations are met.

Planning for these scenarios isn’t pessimistic—it’s realistic and smart.

4. Investing: Your Dollar Army

Think of investing as sending out an army of dollars to work for you. Each dollar has the potential to go out, earn more dollars, and return stronger. This isn’t about chasing quick gains or risky ventures; it’s about creating a disciplined, long-term plan. A diversified portfolio can help you grow wealth steadily over time, giving you the financial freedom to step away from racing when the time comes.

5. Minimizing Taxes Isn’t Always the Best Move

Many jockeys focus on minimizing taxes today, but this can lead to missed opportunities for long-term growth. For instance, maximizing contributions to tax-advantaged retirement accounts might reduce your tax bill slightly now but can result in additional taxes in retirement. Additionally, if you look to make a career transition or major purchases well before typical retirement ages, you may face stiff taxes and penalties to access your money. Lastly, tax-deductible business purchases can reduce taxes but they only make sense if the purchase is necessary for your business. Work with a financial advisor to strike the right balance between short-term tax strategies and long-term wealth-building goals.

Bonus Tip: Plan for Your Money Before You Earn It

Without a clear plan for your earnings, it’s easy to fall into financial traps. The thrill of a big payday might tempt you to splurge on unnecessary things like flashy cars, luxury items, or extravagant trips. You might also forget to set aside money for taxes, leading to a nasty surprise when the bill comes due. And without a strategy, windfalls can vanish before you’ve invested them to secure your future. Budgeting isn’t just about controlling spending—it’s about giving every dollar a purpose. By planning ahead, you can avoid common pitfalls and make sure your earnings set the foundation for lasting financial security.

Take the First Step Toward Financial Success

You don’t have to figure all of this out on your own. Managing your finances as a jockey is challenging, but with the right guidance, you can create a plan that works for you now and in the future. I help jockeys navigate these financial complexities—whether it’s saving for the long term, reducing taxes appropriately, planning for injuries, or investing to grow your wealth. Let’s work together to ensure your hard-earned money works as hard as you do.

Contact me today to start building your personalized financial game plan. Your career may have a finish line, but your financial success doesn’t have to.