| The 2023 Thoroughbred Owner Conference streamed its first panel Tuesday, March 7, with a dive into accounting and tax considerations for Thoroughbred owners. The conference is hosted by The Jockey Club and the Thoroughbred Owners and Breeders Association and presented by Bessemer Trust, Stoll Keenon Ogden, and The Green Group. The panel was sponsored by Mersant International.
The panel was moderated by Gary Falter, project manager for OwnerView, and the panelists were Len Green, founder and chairman of The Green Group; Jonathan Green, a certified financial planner and manager of D.J. Stable; and Aron Yagoda, Thoroughbred owner and a board member of the New York Thoroughbred Horsemen’s Association. The panel covered a broad range of topics, including understanding the cost of ownership, principles of accounting, tracking revenues and expenses, tax considerations, sales, and giving back to the industry. Attendees were able to ask questions through the Q&A link toward the beginning of the discussion and again at the end of the panel. The panel began with a discussion on the general costs of owning racehorses and how to budget. According to Yagoda, to begin you must hire a trainer and understand training costs, which can be about three-quarters to 80% of your monthly bill. “They [training costs] range from $65 a day to $125 a day depending on where you’re racing and what circuit you are racing in, and there are other costs associated with that that you have to take into consideration.” he said. “You are talking about another anywhere from $1,000 to $3,000 a month that constitutes veterinary bills, vanning, blacksmith, travel, and race expenses,” Jon Green said. “There is really not much price difference between campaigning a $5,000 claiming horse or campaigning a graded stakes winner,” he continued. “The expenses are all almost the same. The fixed costs are almost the same. The only difference is if you have a better horse you are going to spend a little more on investing in stakes nominations and maybe a little bit less in vet fees, but otherwise it costs almost the same amount of money.” With regard to tax considerations, Len Green explained some of the differences between owning racehorses and other assets, and some of the different types of deductions and expenses associated with horse ownership. “People who specialize in the business really know how to save your taxes and maximize your deductions, and you really want to be active enough to do each of these things,” Len Green said. “The key to having a chance to make money is to be active and keep records and see where you are and if necessary, pivot and change the way you are doing things.” The session concluded with a discussion about how owners can give back to the industry. “The way that we look at it and try to promote it to our clients is that when you buy a horse, you are buying a horse for that horse’s lifetime. You are not just buying it for that horse’s racing career,” Jon Green said. “If you have an opportunity to repurpose that horse and retrain it to have a second career, we really feel like that’s what you should be doing.” The replay of Tuesday’s panel and previous Thoroughbred Owner Conference panels is available at bit.ly/OVVideos. Nine additional Thoroughbred Owner Conference virtual panels are scheduled for 2023. There is no registration fee for the 2023 virtual conference series, but registration is required. For more information about the owner conference series, including the schedule of panels and registration, please visit ownerview.com/event/conference or contact Gary Falter at 859.224.2803 or gfalter@jockeyclub.com. OwnerView is a joint effort spearheaded by The Jockey Club and the Thoroughbred Owners and Breeders Association to encourage ownership of Thoroughbreds and provide accurate information on aspects of ownership such as trainers, public racing syndicates, the process of purchasing and owning a Thoroughbred, racehorse retirement, and owner licensing. The need for a central resource to encourage Thoroughbred ownership was identified in the comprehensive economic study of the sport that was commissioned by The Jockey Club and conducted by McKinsey & Company in 2011. The OwnerView site was launched in May 2012. |
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Category: Len Green
Proven Strategies: No Horsing Around with Independent Contractors
“Proven Strategies” is a new regular series in the TDN, presented by Keeneland. It is written by Len Green of The Green Group and DJ Stables, who won the 2018 GI Breeders’ Cup Juvenile Fillies with Jaywalk (Cross Traffic).
by Len Green, John Wollenberg & Agnieszka Kagan
It is not uncommon for pinhookers or trainers to employ seasonal workers at sales or around the racetrack. Some of these employees may be considered as independent contractors.
The perception that employers are attempting to circumvent paying payroll taxes by classifying workers as independent contractors has caused the Internal Revenue Service (IRS) to step up its efforts in analyzing this controversial topic more closely.
This article provides an overview of the factors examined by the IRS and offers insight into how to better secure independent contractor status.
The Advantages of Employing an Independent Contractor
Traditionally, many employers have classified workers as self-employed or as independent contractors. There are various benefits to this classification:
1) By positioning themselves as “self-employed” or independent contractors, no payroll or income taxes need to be withheld from paychecks.
2) Independent contractors do not have to be covered under pension plans and employers save on insurance and workmen’s compensation costs.
The IRS Perspective
To help determine whether a worker is an employee or an independent contractor, the IRS has developed a 20-factor control test based on common law principles. The 20-factor test is an analytical tool only, there is no “magic number” of relevant points. The factors are merely points for consideration in evaluating the extent to which the employer can “direct and control” the worker.
Below are some of the more relevant factors to consider when evaluating whether an individual is an employee or self-employed/independent contractor.
Employee Factors
Instructions: A worker who is required to comply with another’s set of instructions is ordinarily considered an employee.
Training: Formal or informal training at an employer’s expense is indicative of an employer relationship.
Integration: Integrating the worker’s services into the business operations generally shows that the worker is subject to control.
Services rendered personally: If the services have to be personally rendered, the employer probably controls the means as well as the results.
Hiring, supervising and paying assistants: Unless workers hire, supervise and pay their own assistants, if any, they are likely an employee.
Continuing relationship: The longer the liaison, the more likely an employee.
Full-time required: A full-time position is indicative of an employer-employee relationship, whereas independent workers choose their own hours.
Oral or written reports: Regular accountability of progress is usually a sign of control.
Payment of expenses: Reimbursement tends to support an employer-employee relationship.
Self-Employed or Independent Contractor Factors
Hours of work: Independent contractors control their own time.
Order of sequence set: Only a nonemployee is free to determine his/her own approach, pattern, priority and schedule.
Multiple assignments: Workers who perform more than one job at a time for multiple different businesses are likely an independent contractor. Exercise riders at tracks tend to fall into this category especially if they rotate among barns or farms. Payment by hour, week or month:Independent contractors are typically paid by the job, not in regular pattern.
Tools and materials: Independent contractors provide their own tools and materials.
Economic loss: A worker who is subject to the risk of economic loss due to a liability for expenses is an independent contractor.
Right to discharge: An independent contractor generally cannot be fired if the contractual specifications are met.
Right to terminate: Employees have the right to terminate their job without incurring liability.
Safeguards to Withstand IRS Scrutiny
Since an IRS audit can result in an assessment of penalties and interest, in addition to the employer/employee payroll taxes that will be due, it becomes incumbent to take measures to preserve the intended working relationship.
Suggestions from The Green Group
1) Apply for an advanced ruling, Form SS-8, entitled “Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.” The advantage to this filing is to get clarity as to whether a worker is an employee. The form focuses on behavioral control, financial control and relationship of the worker.
2) Enter into a written consulting agreement with language coordinated to the 20-factor control test. The contract should specify the nature of the work to be performed, discuss the terms and conditions and state the responsibilities of the independent contractor.
3) Utilize practices that are consistent with recognized practices in the horse industry, specifically with farm owners, pinhookers and trainers.
State Interpretations
Please check as to your state’s specific regulations. Since some states apply their own standards, often stricter than the IRS rules in terms of reclassifying independent contractors into employees. Some use a three-prong “ABC” test with the employer having the burden to prove that the relationship is that of an independent contractor, rather than as an employee. In other states, an independent contractor is someone you hire to work on a task unrelated to the field of business you are associated in and whose work you have no control over. While still other states use a “level of control” test.
Department of Labor Audits (DOL)
As if a trainer’s life isn’t difficult enough, the DOL has started extensive audits at racetracks to make sure workers are being properly paid for their hours. Since many trainers do not traditionally use “time clocks” to keep track of hours worked, this becomes an expensive issue.
Our team has had success in this area.
Summary
You must analyze whether a potential employer-employee relationship exists with people who work for you.
Penalties can be imposed for failure to withhold income and employment taxes, and qualified retirement plans could be jeopardized if employees who should be covered are not due to misclassification as independent contractors.
Bottom Line
You should have an accountant who is familiar with the Thoroughbred Industry review your practices. You might need to change your procedures to satisfy the complicated IRS rules. If the IRS challenges you and wins, you may be subject to interest and penalties.
If you have any specific questions, please call us for a free one-hour consultation.
The Green Group
Phone: (732) 634-5100
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