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.
