Owning (a) Shackleford

Quote: FinsRule

Unshackled.

I asked the Wizard about his thoughts on taxes, just waiting for his response.

Sorry Fins, now I remember you mentioned that name in the OP.

'Unshackled' is a cool name.

Loved her daddy. He was tougher than a $2 steak.

A friend of mine owned a fractional percentage in a racehorse . I believe he owned 2%. He talked about this horse constantly as the colt was growing up. It didn't turn out well but he had the dream.

Quote: HowMany

Loved her daddy. He was tougher than a $2 steak.

And he will probably be one in about three years.

Quote: DRich

And he will probably be one in about three years.

I'd say the average thoroughbred in the us is treated better than most humans are treated...

The Wizard doesn't want it in his name because of the tax issues that were brought up. Id put it in mine, but I won't be able to set up an LLC unless someone here will do all the work.

I hope you do not mind if I add my two cents to this thread. This is going to be long winded!!!

I forgot what the IRS rules are for horse racing, I think it is make a profit in 3 of 5 years, if not it is classified as a hobby and you cannot deduct any expenses.

Back in the mid 90s I used to own harness race horses in the Chicagoland area. During that time, the Illinois horse racing industry was very strong. The purses were very competitive to other states. Once there were issues with the Racing Board and the Illinois General Assembly regarding budgeting for purses and continuously denying race tracks the opportunity to house slot machine, I left the industry as an owner.

Here's a little background on the race industry from a harness perspective, though it should be the same for Thoroughbreds.

Expenses:
Trainer fees ranging from 1,000-2,000 per month
Monthly fee for room and board (barn, feed, etc.)
Vet expenses (general check up, medicine, lasix, etc.)
Farrier, this is a blacksmith who does horse shoeing. Generally, the horse needs new shoes monthly.
Equipment, blankets, etc.

Racing Expenses:
Transportation/shipping horse on race day, as most horses are stabled on farms and not in the barn at the race track.
Jockey, there's a set fee for a jockey, the well known jockeys have higher fees. I do not know the going rate for a Thoroughbred jockey, assume at least $50/per race
Jockey, if the horse cashes (finishing in the top 5 of a race, the horse owner receives part of the purse). Generally, the jockey gets 5% of the purse money earned plus the set fee to race the horse
Trainer gets 5% of the purse money earned
Paddock fee (to be stabled at the race track on race day)
Stakes entry fee

REVENUE:
Back in the day for harness racing, the purse breakdown was a follows:
50% purse goes to 1st place
25% purse goes to 2nd place
12% purse goes to 3rd place
8% purse goes to 4th place
5% purse goes to 5th place
Finish 6th or worse, ZERO. Like not making the cut in golf tournaments.


Races:
If a horse makes it to the race track, they first have to go to qualifiers. Generally, qualifiers are required for any horse making their first race or coming off of a long rest or first time lasix. This is to make sure a horse can race at a certain time. For example, race a 2:00 mile. The horses are racing against the clock and their finish has no bearing on the race as there is no purse to win in qualifiers.

Once the horse qualifies, it is eligible to race. Speaking of which, as a minority group owner, do not expect to make it into the barn/back stretch. This is reserved for racing personal and owners that have been licensed and cleared back ground checks. As an owner, it was great, because I could talk to the trainer and know if my horse was very sharp and expecting to win or just not warming up properly but hoping to hit the board (board, tote board, finishing 2nd/or 3rd (place/show)). From there, I knew if I was going to hammer my horse based on current odds and playing the exacta, trifecta and other gimmick bets.

Generally, having an elite horse is the equivalent of having a very successful table game. It is few and far between. You can always dream big, but be realistic.

There will be maiden races and other races. The trainer recommends which type of race to enter the horse. NW1 is non-winner of 1 race lifetime. When you read a program you might see NW4/25,000. That means a horse that is a non-winner of 4 races or $25,000 of purse winnings in a lifetime. Picture it as rookie ball, A, AA, AAA, etc. Basically, you are racing against equal competition.

There are also claiming races. That's where I bought my first horse and also had the horse claimed. If your horse is claimed, the trainer is handed a slip just before the race goes off, stating your horse has been bought. Once the race is over, you wash up the horse and hand him over to the new owner/trainer. The amount that the horse was claimed for is immediately in your account with the race track. That is always where the purse winnings are placed.


It was an exciting experience. I claimed a horse for 8K. The next week, I was required to enter him in tougher competition at the 12K claimers. It was Halloween night 1995. The horse had the 2 hole at Maywood. The trainer said he was sharp. It was raining, I bet him and my friends gave me money to bet. The horse went off at 26-1, went 3 wide around the 3 quarter turn, and drew off to win by 5 lengths. I was in shock as I went to the winners circle for the photo. The track announcer called down to get the correct pronunciation of my name during the replay of the race. All I remember were the drivers (jockeys for harness races) saying, enjoy it, very few owners ever win their first race. I still have the win photo hanging in the man cave. I was dressed for the mud. I looked like a bum because I was going back to the barn after the race. From then on, I dressed up for the rest of the races.

That first race, my friends and I pooled our money. We hit everything, the exactas, trifectas, late daily double, win, place, show. I think I placed a total of $800 in wagers and walked out with over 12K and that did not even include 4K in purse winnings as the race's purse was 8K. At one point I had 2 horses racing on a weekly basis. So instead of using the initial 8K as a down payment for a condo, I used it for a horse. In a couple of weeks, I was fortunate enough to have that money back and get the condo I was planning on purchasing.

Sorry to get side tracked, just wanted to share my experience in the industry.

thank you for sharing, it was interesting.

So as your name indicates, what info can you give on that? Are there going to be major tax problems with a bunch on shlubs trying to buy 2% of a horse?

No, there will be no major tax problems.

It's not difficult to establish an LLC.

The only thing you must do is document how many people will be owning the 2%. From the looks of things, it might be a minimum of 5 with a max of 20+. Each individual will need a K1 as I am assuming you will be a partnership and each partner will have different percentages.

Which also leads to potential percentage changes in ownership as more capital might be required to keep current on your percentage of bills while other partners may not want to contribute or sell their 1% of the 2% share.

Plus, you will need someone to be the point contact for tax issues and that someone will have to be in direct communication with the owners to get the information needed for the tax return.

I will not say major problems. It's going to be expensive doing that return when there is going to be no revenue for a couple of years.

It will be more of a headache than anything else.

So taxman, do we HAVE to do the LLC? The ownership group already has one...

Quote: FinsRule

So taxman, do we HAVE to do the LLC? The ownership group already has one...

I am deferring that question to the owners of the horse. Let them direct you on how to handle.

Quote: FinsRule

So taxman, do we HAVE to do the LLC? The ownership group already has one...

You either have to form an entity (LLC or other entity) or have an individual step up and own the 2% for the group with some written side deal in place. The actual horse Ownership LLC is going to have to have a name, address and Tax Identification Number of the owner of the 2% they are selling to our group.

To be honest, I would avoid the LLC as it will be a headache to form and expensive to get a return completed. I would do the return, but internally it costs me $60 per year to process one on my software and my time to prepare it......who wants to pay that when in all likelihood the losses that we will experience in owning this fine equine specimen will likely be non-deductible by anyone because of the passive activity loss rules and the hobby loss rules associated with horse racing.

For those reasons, I think it is -EV to set up an LLC

But there is a chance if the horse is a success that we will run into some different problems getting all the investors distributions on a pre-tax basis.....the straw owner will have to run the profit through their own individual return and then send folks their pro rata net amount after paying any taxes due on the straw owners return attributable to the horse profits.......it will get messy particularly if the straw owner is already in a high tax bracket and some of our owner group would pay very little tax if they claimed the income on their own returns.

But really, what are the chances our ownership group actually makes money anyway.....this is a for fun, not for profit type deal as far as I can tell.

I am good for $100 if an LLC forms or someone wants to take responsibility for this. I look at this as entertainment and it would give me a reason to learn something about horse racing in general. My only reservation in forming a partnership or LLC as opposed to an individual owning the 2 percent is sending my social security number and other personal information to a stranger I do not know.

HERE ARE THE OFFICIAL PARTNERSHIP RULES:

The purpose of this partnership is to acquire 2% of the horse Unshackled.

We will be dividing the partnership into 50 shares. The total cost of owning the horse until April 2017 is $3400. ($1000 + $50 a month from April 2013 - March 2017) Therefore a share is $68.00.

After April 2017 - If there are not enough winnings to cover the $50 expenses, each share must pay $1 per month in fees. If they do not pay fee, their share is forfeited.

Shares can be purchased until the day of the Kentucky Derby in 2016 - But at least 25 shares must be pledged and paid by 6/30/2014 for the partnership to commence.

Any winnings will be distributed annually. If the partners vote, an LLC will be formed.

Any decisions that owners must vote on will be voted on the forum.

All communications will be made on this forum or through PM. If you are worried about being banned/nuked, you can send your e-mail address to me.

I will be the name on record in the partnership.

Please post after this message how many shares you will be purchasing.

I know I didn't think of everything, so I will answer any questions.

1. is there a share being donated to Wizard? If so would the shares be $69

2. is there going to be any a written agreement or anything between the owners?

3. What happens if the expenses increase for some reason? Would they come after us for more money for upkeep?

4. I am not saying that I don't trust you but how do we know that the ownership took place and that it is for reel?

Sorry for all of the questions and I am sure I will have more.

I'm in for $69.

Quote: GWAE

1. is there a share being donated to Wizard? If so would the shares be $69

2. is there going to be any a written agreement or anything between the owners?

3. What happens if the expenses increase for some reason? Would they come after us for more money for upkeep?

4. I am not saying that I don't trust you but how do we know that the ownership took place and that it is for reel?

Sorry for all of the questions and I am sure I will have more.

I'll donate a share - Let's keep it $68

I'll keep a document with all shares on it. And share any communications I receive.

I'll handle any expense increases.

Um... I'll share any documents I receive?

I'm in for 3 shares if multiple shares are available.

ZCore13

in for 68

2. Yes, all partnerships need to have a partnership agreement

3. This is a business, you still need to put money into the partnership. Because if you don't, someone else will and will probably ask for an additional percentage.

Does anyone know that the entry fee for the Kentucky Derby is 25K and another 25K once you enter the gate? There are also entry fees for the Preakness and Belmont which I believe is at least 10K.

Also, you need to be wise about income tax. Whenever you earn money in a state, you have to file an income tax return. Income tax returns requirement apportionment factors. Just add this to the list of returns and miscellaneous expenses that will be incurred.

I'm in for 2 shares

Quote: TaxmanCPA

2. Yes, all partnerships need to have a partnership agreement

3. This is a business, you still need to put money into the partnership. Because if you don't, someone else will and will probably ask for an additional percentage.

Does anyone know that the entry fee for the Kentucky Derby is 25K and another 25K once you enter the gate? There are also entry fees for the Preakness and Belmont which I believe is at least 10K.

Also, you need to be wise about income tax. Whenever you earn money in a state, you have to file an income tax return. Income tax returns requirement apportionment factors. Just add this to the list of returns and miscellaneous expenses that will be incurred.

If we have to worry about paying the entry fee to the Derby, then the horse will have made at least 5X that much...

Quote: TaxmanCPA

Does anyone know that the entry fee for the Kentucky Derby is 25K and another 25K once you enter the gate? There are also entry fees for the Preakness and Belmont which I believe is at least 10K.

I think, at this point, it's crystallized that we're buying the dream, not the horse.

I'm going to have to back out, sorry folks. After considering it deeply, it sounds like a fun idea, but I've been throwing around too much money lately. Best of luck!

I'm in for three shares

I'll do 3 shares @ 68 for $204.

Does everyone who buys a share(s) have to give up personal information? If a horse does well is their revenue generated in other ways like sponsorship's?

Quote: AxelWolf

Does everyone who buys a share(s) have to give up personal information? If a horse does well is their revenue generated in other ways like sponsorship's?

No, I'm not asking for personal info unless we got to the point where distributions were quite large. Nope, horses pretty much only earn their money on the track or in the breeding shed.

Unless you get sponsored by Skechers

http://espn.go.com/horse-racing/triplecrown2014/story/_/id/11018673/california-chrome-signs-first-major-marketing-deal-shoe-brand-skechers

At least with a Philly maybe she will get picked to carry california chromes babies.

I am in for 3 shares at $68 each......we can figure out the details later.....its $204 for crying out loud :-).

I am ok with setting up an llc if anyone else does not want to take responsibility for it.

Quote: coilman

http://cs.bloodhorse.com/blogs/beyond-the-blinkers/archive/2014/05/29/shackleford-fan-group-to-race-stallion-s-offspring.aspx

Yep, that's what we are in if we can get our (masked profanity) together.

I am in for 2 shares, just let me know to whom and when to make payment.

Just an interesting side note, I live about 10 minutes from the farm on which this horse was born.

Quote: Paradigm

I am in for 3 shares at $68 each......we can figure out the details later.....its $204 for crying out loud :-).

Sixty eight dollars plus a small
maintenance fee seems
reasonable to have a piece of
the dream

My friend tells me that this filly
is better bred than California
Chrome. So there you go.

A great read for new dreamers
to the game is a book titled
Horse of a Different Color

Quote: artvandelay

My friend tells me that this filly
is better bred than California
Chrome. So there you go.

My dog is bred better than Cal Chrome.

Current Share List:

Paradigm - 3 Shares
MidwestAP - 3 Shares
Beachbumbabs - 3 Shares
Zcore13 - 3 Shares
Slackjawyokel - 2 Shares
GTS4ever - 2 Shares
GWAE - 1 Share
Onenickelmiracle - 1 Share

We need 7 more before I'll proceed.

3 shares

I am in for 3 shares also

Finsrule,

I am currently signed up for 2 but i want this deal to go through so sign me up for a third. That should make enough shares to proceed.

Thanks
Slack

Current Share List:

Beerseason - 3 Shares
Paradigm - 3 Shares
MidwestAP - 3 Shares
Beachbumbabs - 3 Shares
Zcore13 - 3 Shares
JW17 - 3 Shares
Slackjawyokel - 3 Shares
GTS4ever - 2 Shares
GWAE - 1 Share
Onenickelmiracle - 1 Share

25 Shares are still available, but this is at least enough for me to contact the owner to tell her we are interested. Anyone who wants additional shares, please let me know.

After I confirm with owner, I'll give everyone Paypal information.

When you talk to the owner again ask what the MANAGING FEE is going to be set at

Guy in Ontario started up a stable where all the horses were done like this,,,, shares sold on each horse. So much a month training fees PLUS like 15% MANAGING FEE....thats 15% of the winnings went to them for MANAGING the horse CRAZZYYYYY!!!!


to give people an idea what it costs to START a race like the BELMONT here it is

Thoroughbred, Belmont S., STAKES, $1,500,000, 1 1/2M, Dirt, No Conditions, FOR THREE YEAR OLDS. By subscription of $600 each, to accompany the nomination, if made on or before January 25, 2014, or $6,000, if made on or before March 22, 2014. At any time prior to the closing time of entries, horses may be nominated to The Belmont Stakes upon payment of a supplementary fee of $75,000 to the New York Racing Association, Inc. $15,000 to pass the entry box and $15,000 additional to start. All entrants will be required to pay entry and starting fees; but no fees, supplemental or otherwise shall be added to the purse. The purse to be divided $800,000 to the winner, $280,000 to second, $150,000 to third, $100,000 to fourth, $60,000 to fifth, $45,000 to sixth, $35,000 to seventh and $30,000 to eighth. Colts and Geldings, 126 lbs.; Fillies, 121 lbs. The winning owner will be presented with the August Belmont Memorial Cup to be retained for one year as well as a trophy for permanent possession and trophies to the winning trainer and jockey.

I'm pretty sure if your horse is in the Belmont or Kentucky Derby you would have made quite a bit of money in previous races.


ZCore13

I'm waiting to hear back from the managing partner. Remember, plenty of shares still available!

What happens if they don't sell the entire horse?

What is going on, I want to tell everyone I own 6% of 2% of a race horse!! LOL

Quote: JW17

What is going on, I want to tell everyone I own 6% of 2% of a race horse!! LOL

I mentioned it to a lady at work and she was really jealous. She owns 2 horses already and is into the racing scene.

any update to this?? Just curious. Still seems like a lot of fun to me.

Quote: JW17

any update to this?? Just curious. Still seems like a lot of fun to me.

She hasn't responded. I'll try her one more time tomorrow...