The Green Group | Horse Racing Free Tips

ARCI’S Ed Martins Joins The TDN Writers’ Room

Confusion has reigned ever since an appellate court ruled last week that the Horse Racing and Integrity Act (HISA) is unconstitutional. So what does that mean for the state racing commissions and what should they do going forward? The TDN Writers' Room presented by Keeneland called upon Ed Martin, the chairman and CEO of the Association of Racing Commissioners International to help clear up the situation. Martin was this week's Green Group Guest of the Week.

Martin believes that considering the situation HISA should drop the Jan. 1 date and put off taking over drug testing until after the situation has been fully resolved in the courts.

“HISA could fix this themselves by going back to the FTC and saying we're going to put off enforcement of our drug rules,” Martin said. “And they could put it off six months and hopefully we'll get a final court answer by then. But it doesn't look like we're going to get a final determination of their constitutionality any time soon. So this is going to go into a great gray area.”

Martin said he feared that if HISA were to sanction someone after taking over drug testing and enforcement from the state racing commissions that the ruling could be thrown out because the court has said that HISA is unconstitutional.

“We're in a situation where we have a sport where the HISA rules will apply on January 1st and people will get sanctioned for a drug violation or a doping violation under the HISA Rule,” Martin said. “Then if HISA is ultimately declared unconstitutional and invalid, then that violation goes away. It doesn't exist. The penalty goes away. And you've redistributed purses. So this has the potential to be an enormous, chaotic situation.

“There's also been a number of jockeys across the country who have been sanctioned for HISA crap rule violations. Well, if there aren't constitutional, those violations really don't exist. So expect litigation.”

Martin said he is hearing that should HISA go through some tracks will elect not to take part. That would mean they cannot send out their simulcast signal, a price some may be willing to pay.

“There are tracks that, and I'm not at liberty to say who they are, that are considering not simulcasting their signal to come out from under HISA,” Martin said. “And there are states where the tracks in that state, some of them will simulcast and some of them won't. It depends on their economic viability. This was supposed to bring uniformity to the sport. Right now, it's kind of going in the other way. It's off the rails right now. ”

Elsewhere on the podcast, which is also sponsored by Coolmore, Lane's End, the Kentucky Thoroughbred Association, XBTV and https://www.threechimneys.com/ West Point Thoroughbreds, Bill Finley, Zoe Cadman and Randy Moss gave their own take on the HISA mess. They also looked at Frankie Dettori's decision to join the Santa Anita riding colony starting on Dec. 26 and hue and cry over overly aggressive riding in New York and the feeling that the NYRA stewards are not doing enough to discipline jockeys who go over the line.

To listen to the audio version only, click here. To watch the entire video, click here.

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Ask the Expert: 2021 Taxes

Editor's note: Back by popular demand: our column where readers ask The Green Group's Len Green for advice on saving taxes on their equine-related activities.

What changes in the tax law can I take advantage of this year to maximize my tax savings?

–Kerry L., Lexington, KY

2021 has been another exciting year when it comes to providing new laws that can save you taxes.

1. First-year expensing for qualified property placed in use is allowed up to $1,050,000. This would include the purchase of horses and more fixed assets used in your trade or business.

2. Qualified Business Income Deduction

If you are a sole business owner, or have an interest in a Partnership, Limited Liability Company (LLC) or a Sub S Corporation, you may be eligible for a tax deduction of up to 20% of your Qualified Business Income.

It is important to note that, if you are eligible, this is considered a personal deduction and can be used even if you take the standard business deduction.

3. There are also positive changes in:

A. Child tax credit
B. Dependent care credit and exclusion
C. Earned income tax credit
D. Charitable contributions

I own stallion shares. One of the stallions I own was sold abroad this year. Can I replace that with a new season to avoid paying taxes on it anytime during the year?

–John S., New York, NY

Great question.
Prior to this year, there was a section of the tax code (Section 1031) which allowed for the tax-free exchange of like kind assets.
If you meet the rules, it was possible to defer the gain, if there was one.
Under the new rules, Section 1031 only pertains to real estate property.
But can you accomplish your objective in another way.
If you sell the stallion shares, and the sale is for an amount greater than what you paid for the shares, you will have a gain.
If you buy a new share or any personal property (a horse or farm equipment) and it is eligible for a one year write off (Section 179) or for a first-year expense write off, you could possibly offset the above gain with the tax deduction from using either of these methods.

I bought a yearling in September and plan on selling him at the March 2YO Sales. Is that the same season? Or two different years?
–Gregory L., Montclair, NJ

I am assuming like most taxpayers, you are on a calendar year for filing taxes.
So, the buying of the yearling will be recorded in one year and the sale in another year.
If this is your normal business, we can call you a “pinhooker.”
You would record the purchase as inventory in the year bought and the cost of the yearling would offset the selling price the following year when the animal is sold.
If you were not a “pinhooker” but had bought the yearling to race but decided to sell in the next year, there may be different alternatives to the way you handle the transaction.

What is bonus depreciation and how does it affect my boarding business this year?
–Vicky F., Paris, KY

Bonus depreciation is defined as the additional first year depreciation (Section 168(k)) of the Internal Revenue Code.
It can be claimed in addition to any first-year expensing described earlier in the article.
Bonus depreciation can be claimed for eligible property whether it is new or used.
Something new: It also includes “qualified improvement property.”
Items which are included in this special section are:
Any improvements to the internal part of a building of an existing building that was made after the building was placed into service.
Example of qualified assets: fences, watersheds, additional stalls, and barns

I am planning on starting a small thoroughbred business. Can you explain the difference between S Corp and LLCs as they regard to taxes?
Tom C., Louisville, KY

There are many advantages of operating your trade or business as a Limited Liability Company or a Sub S Corporation.
The protection against possible lawsuits in itself is a great reason for doing it. There are also certain tax advantages.
To maximize the tax advantages, you should form an LLC with a least two partners.
By taking the step to form either of these entities, you will be demonstrating you are taking steps to run your operation in a businesslike manner.
You will not be comingling your personal expenses with your business expenses.
LLCs offer more flexibility and many other advantages compared to S Corps. The one advantage of an S Corp vis-a-vis an LLC would be the avoidance of self-employment tax.
Is it too late now to make any changes that will help me to save money on my 2021 taxes?
–Susan M., Chicago, IL

The answer is generally no if you are reporting your income and deductions on the cash method.
But here are a few:

Check to see if you are eligible to take a deduction for a pension plan for 2021.

The rules are complicated and you must check to make sure you are not covered under another company plan.
But assume you are eligible, certain pension plans (SEP IRAs, IRAs) allow a tax deductions to be claimed for 2021 as long as the pension payment is made before Apr. 15, 2022 (or extended due date for a SEP).

If you bought certain business equipment and placed it in service, even if you did not pay for all of it before 12/31/21, you may be able to deduct the cost of the equipment in 2021.

If you paid state estimated tax payments on 1/15/22 and your total tax expense did not exceed $10,000 some portion of the 1/15/22 payment may be tax deductible.

It's not too late to send in your own question before tax season and get an answer from Len Green. Email suefinley@thetdn.com

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JPMorgan, Four Corners Racing’s Anthony Trimarchi Joins Writers’ Room

It was an eventful few days for racing in the northeast, and the TDN Writers' Room presented by JPMorgan Private Bank broke down all of the latest developments in the Monmouth jockey standoff and the raids on Parx barns by the Pennsylvania Racing Commission Wednesday morning. Plus, they welcomed Four Corners Racing's managing partner Anthony Trimarchi as the Green Group Guest of the Week to discuss his experiences as a new owner in the game and the economics of racing from a banking perspective.

“I was exposed to racing at a real young age because I grew up in Albany, just south of Saratoga,” Trimarchi said of his history in the game. “Every year of my life, I would spend a day at the races with my extended family in the backyard at Saratoga and hanging out at the picnic area at the top of the stretch. I loved going to the track as a kid for the same reasons I love it today. It's an amazing, outdoor sport with beautiful horses, excitement, competition, crowds, numbers, colors. As I got older, I kept going, introducing a bunch of college friends to Saratoga. I had my bachelor party at the Travers in 2010. Fast forward to today, I've been involved on the ownership side for about five years and it's all come full circle for me because I've taken my kids to the track. I've got three elementary school-age children who have all been in the paddock at Belmont, Saratoga and Aqueduct. They've been in the winner's circle at Oaklawn Park. I just hope that they'll have the same fond memories that I have from when I was a kid, and I can't wait to make new memories with them over the next 10, 20, 30 years.”

Also a managing director at JPMorgan Private Bank, Trimarchi was asked from an economic standpoint why he thinks racing has struggled to find new owners despite skyrocketing purses over the last decade-plus.

“I think it's just all about exposure and awareness,” he said. “The purses are attractive if you structure your business the right way and have the right partners. And the shot of adrenaline that you get leading up to a race or when you win a race, I wish I could put that in a bottle because I'll be chasing that the rest of my life. The first time I was in the winner's circle, I decided I was going to own a horse. I saw the sport [initially] through clients who were major owners who had dozens of horses running all over the place. I didn't understand what entry [into the game] would look like. I thought it was the kind of thing you needed to be a billionaire to do. It's not. It requires some disposable income obviously, but you can do it responsibly and get exposure. I'm a great example of that. I started out doing small syndicate stuff, I saw the sport, I saw the risk, I understood it, and I decided I wanted to do more.”

Elsewhere in the show, which is also sponsored by Keeneland, West Point Thoroughbreds, the Minnesota Racehorse Engagement Project and Legacy Bloodstock, the writers questioned whether or not there would be any long-term consequences for Bob Baffert from the embarrassment of the Derby and looked forward to Memorial Day Weekend stakes action. Click here to watch the podcast; click here for the audio-only version.

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Derby Diary: Destination Louisville

We departed New Jersey today-destination Louisville. The flight took almost two hours and thankfully was without incident.

But, in reality, the journey to this time and place began almost 40 years ago when my dad tore his Achilles while playing tennis. Back then, the best way to treat a ruptured tendon was to be placed in a cast from your ankle to your upper hip and keep your body as immobile as possible. Well, anyone who knows my dad understands that this directive was going to be short-lived. As someone once said to me decades ago, “Your father's mind is as active as a long-tailed cat at a rocking chair convention.”

So, after a few days of restlessness, my mother instructed me (at the age of nine) to take my dad out of the house. Anywhere out of the house was fine as far as she was concerned. So, I pushed my father in his wheelchair around the block a few times until a neighbor mercifully stopped us to talk about the weather, sports, the new house being built at the end of the street, etc. When those topics were exhausted, our neighbor asked if we wanted to join him at Monmouth Park – he had a $5,000 claimer who was the favorite.

The short story is that the horse won, we got our pictures taken in the winner's circle, cashed a few tickets and killed a hot summer day. On our ride home, I could see the wheels of my father's brain spinning. For the remainder of the summer, he pored over the IRS tax code seeking feverishly for horse-related depreciation schedules, hobby-loss rules, and passive vs. active definitions–yes, it's as exciting as it sounds.

That summer begat the beginning of two successful businesses-D.J. Stable and the Green Group. The former is our family-owned racing and breeding operation. The latter is my father's tax and accounting firm which specializes in the horse industry.

Technically the two businesses are mutually exclusive. But there is so much cross-over due to both groups being actively involved in our boutique industry. There are countless times when we attend sales seeking our next potential Grade I contender and end up consulting with a Green Group client about their taxes or reviewing a business opportunity. The bottom line is that we basically eat, drink, and sleep the horse business. We have found that it is the ultimate challenge trying to (as we call it) sweep the ocean back with a broom.

So now I sit here in a hotel room in Louisville, Kentucky on the last Thursday in April (not the same sexy ring as the first Saturday in May) and reflect on all the twists and turns through which our Thoroughbred career has taken us. What if my dad had not torn his Achilles tendon? What if our neighbor's claimer failed to hit the board? What if my father's interest that summer had turned to baseball instead of horse racing? What if we had not met Aron Yagoda, Mark Casse, Bo Hunt, Dr. Pugh and Susie Hart, Jeff Hayslett, the Taylor brothers from Taylor Made Sales, Bill Betz, Kim Valerio, and countless other people who have had such a positive impact on our success? What if last year's two-year-old sales were not delayed and someone else bought Helium? And finally, what if we ran out of luck, money and/or patience before we bought or bred Graded winners like Do It With Style, November Snow, Songandaprayer, Jaywalk, etc.?

The above life moments all lined up this way for a reason. So far it launched two successful businesses, provided my family with a remarkable shared interest, and presented countless opportunities for excitement (and heartbreak). Hopefully there will be more flights to Breeders' Cups, Oaks, Derbies and other Graded Stakes that I can share with my family. But for right now, I'm going to enjoy this one.

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