about the texas liability act, our state has pretty much the same act. it's a GREAT act that should cover horse businesses very well. But a few years ago a girl climbed over our fence, walked into a paddock, was doing something with the horses in there and was kicked in the head (by a very gentle horse that has never oven offered to kick). she almost died and now suffers from brain damage. my BO (who is insured as can be, practices every safety measure, has all the wavers, warning signs, etc etc) was sued by the parents, despite the fact that she tresspassed onto our property (which the act specifically states puts the trespassers at fault), was aware of the dangers, etc... Technically they had no case but the courts didn't throw it out. My BO was stuck with the case for almost 3 years! in the end he of course was found not at fault but was still made to pay over $90,000 in legal fees.
There are a lot of idiots and jerks out there, I'd talk to a lawyer and make sure you have EVERY base covered. Tax wise, I don't know if it would be considered supplemental income or a new small business. It may depend on what kind of insurance you have to get. Truthfully, the amount of insurance you'll have to get for this kind of thing will most likely be ridiculously high and you may not break even by opening yourself up to the public.