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Step 1
Organize all of your receipts. If you have any electronic receipts, you should print them out so that you have a paper copy. Keep the previous years' records, because the IRS might audit a past tax return.
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Step 2
Calculate the earnings of your racehorse. If your horse hasn't raced that year, you will not have any earnings. Otherwise, add up the earnings for every racehorse you own before deducting expenses.
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Step 3
Determine if you are an active or passive owner according to the IRS guidelines. You will qualify for more deductions if you are an active owner.
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Step 4
Add up all expenses associated with horse ownership. The IRS guidelines allow you to deduct any costs that are ordinary and necessary. For example, training services from a licensed trainer are ordinary and necessary. The same applies for jockey fees and feed for the racehorse.
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Step 5
Subtract the total expenses from the total earnings to determine your bottom line. Your bottom line is the amount earned or lost that year for all racehorses you own.
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Step 6
Deduct additional expenses if you qualify as an active owner under IRS guidelines. These expenses include subscriptions to industry publications, commissions to a bloodstock agent and depreciation of your racehorses.
