10/04/2012 06:19 pm ET Updated Oct 18, 2012

Small Business Tax Benefits For The Ultra-Rich: Mitt Romney's Horse Is Just The Beginning

WASHINGTON -- Polo ponies, vineyards in Napa Valley and racing yachts are some of the trappings of the ultra-wealthy all over the world. But in the U.S., elaborate tax structures can also make such luxuries into small business assets for their owners.

The question of who, or what should qualify as a small business shot back into the spotlight Wednesday night during the first presidential debate of the 2012 election. Sparring over their respective tax plans, President Barack Obama scored a point when he said, "Under Gov. Romney’s definition, Donald Trump is a small business. I know Donald Trump doesn’t like to think of himself as small anything." According to HuffPost's Zach Carter, this is true.

Romney, following Republican tax messaging going back several years, classifies anyone recognizing business income on their individual tax returns as a "small business" -- including people like Donald Trump, who recognize business income from book sales and speaking fees.

But self-promotion is far from the only thing the very wealthy have been known to designate as a "small business" at the same time as they enjoy it on a personal level.

For that, look no further than Republican presidential nominee Mitt Romney's own Olympic dressage horse, Rafalca, which his wife, Ann Romney, co-owns. Officially, Romney's share of the horse is owned by the small business entity the Romneys set up for just this purpose, called Rob Rom Enterprises. And in 2010, they claimed on their taxes to have lost $77,000 on the "business."

So how does a multi-millionaire like Romney get to call his horse a business? It comes down to the potential for future income that some horses offer -- a case that's easier to understand in the context of racehorses. If a racehorse is highly successful, it's a good bet that that their progeny will be successful, too, and could return a significant profit for the owners, both in breeding fees and race winnings.

Ann Romney has called dressage, "the passion of my life," but the difference between a passionate hobby and a small business is a serious one, and the IRS is charged with enforcing it. For wealthy people, however, who can pay hundreds of thousands of dollars a year to board, train, and outfit a competition-level horse, it's tempting to conjure up ways that the horse might make some of that money back, thereby qualifying the hobby as a small business.

Earlier this year, Rafalca's rider, Jan Ebeling, told Bloomberg Businessweek, “I hate to talk about a horse as a product, but basically Rafalca is the product. The plan is to have a horse do well. And then use it for breeding. In this case you would have babies and hopefully be able to market the babies." Rafalca didn't win any medals at the London Olympics, and at 15 years old, the mare is well past her breeding prime. Nevertheless, what the Romneys are doing in perfectly legal.

Want to see some more luxuries that wealthy people can legally classify as small businesses and small business expenses under certain conditions? Click through our slideshow below.

Outrageous 'Small Businesses' Offer Tax Benefits To The Ultra-Rich