Motorcycle Racing Forum

Racing Discussion => Racing Discussion => Topic started by: Lowe119 on July 28, 2004, 10:00:58 AM

Title: Racing as a business
Post by: Lowe119 on July 28, 2004, 10:00:58 AM
So I know people claim mileage, equipment costs, fuel, hotels, and everything they can as business expenses for their "Bass Fishing Tournament business" and their "Road Racing business." How do we start that up?

Do we have to register our business somewhere? Do we need an EIN? Or do we just claim it on our taxes as "XYZ Racing"?
Title: Re: Racing as a business
Post by: Woofentino Pugrossi on July 28, 2004, 11:02:52 AM
Good question.

My brother wants to stat a business and can you deduct the racing sponsorship as a tax deduction?:D
Title: Re: Racing as a business
Post by: MELK-MAN on July 28, 2004, 11:58:59 AM
pretty sure you have to form a corporation. The govt. wants to see a profit so you can do this for 3 years i think. I have a corporation already and write off as a bus exp to that corporation, as an advertising exp.
Title: Re: Racing as a business
Post by: spyderchick on July 28, 2004, 12:15:54 PM
You do not have to form a LLC or incorprate. You file a Schedule C for the feds as a sole proprietor. You will have to have documentation for ALL expenses. It is best to start a mileage log for each trip. Save all receipts, etc.

Consult an accountant for how best to document your race business. You will have to actively seek sponsorship, and try to make money. Contigency certs count as money, as do racer discounts.

For each state's tax liabilty, again contact an accountant.

You do have to show a profit after 3 years, better to show a profit after 2. If not, you will no longer be able to show a loss. You are ore likely to be audited, but if all of your paperwork is in order, it won't be a problem.  

If you are in Wisconsin and are looking for a good accountant familiar with racing, let me know and I'll get your her #.  



Title: Re: Racing as a business
Post by: spyderchick on July 28, 2004, 12:17:28 PM
As Melk-man said, if you already own a business, you can use racing as an advertising tool. Again, documentation is KEY!
Title: Re: Racing as a business
Post by: Lowe119 on July 28, 2004, 12:21:51 PM
I think I am going to talk to my business partner about sponsoring my racing instead of paying dividends........... That looks like it would be the best solution for me.

So if you see my bike with construction equipment graphics on it, you can laugh but there is a good reason for it. Midwest Attachments Racing  8) I already have the brown bike lol  ;D
Title: Re: Racing as a business
Post by: spyderchick on July 28, 2004, 12:26:42 PM
Who would laugh? Good for you for getting some race ching! :D
Title: Re: Racing as a business
Post by: Lowe119 on July 28, 2004, 12:34:59 PM
I offer "Racer Deals" for anyone who needs an auger or trenching attachment for their skid steer, mini loader, backhoe (auger only), or mini excavator (auger only).   :P  ;) Got to make my advertising money work.
Title: Re: Racing as a business
Post by: H-man on July 28, 2004, 01:00:58 PM
First I am NOT an expert on this, but I did stay at a Holiday Inn last night and had a dream about this stuff ;D

There is a very good book published by Steve Smith Autosports titled The New Racer's Tax Guide written by Steve Smith.  Lots of answers to racing "business" questions with case histories and more.

Here's the link http://www.ssapubl.com/index.cfm?do=list&categoryid=10

FYI - As Alexa noted, the key thing the IRS looks for is whether you are in this as a legit business (i.e., to make money).  The IRS will expect you to make money in 2 out of 3 years.  They reason that a legit usiness wouldn't continue operation with continuing losses past 3 years.  And enter mostly (if not exclusively) races that offer prize money.  Hard to say your racing is a "business" when most of your races are non purse events.

Also, while many folks (myself included) think of getting a separate business they own to sponsor or advertise their bike, if audited, the IRS will look for (a) similarity of field - how likely is it that likely customers/clients would see the ad at the track (b) evidence that business was actually gained through this method of advertising.

You can claim your expenses as a serious hobby (I forget the form number), but your losses are limited to your earnings.

Good luck & cheers mate,
   H-man

Title: Re: Racing as a business
Post by: Lowe119 on July 28, 2004, 01:16:34 PM
QuoteAlso, while many folks (myself included) think of getting a separate business they own to sponsor or advertise their bike, if audited, the IRS will look for (a) similarity of field - how likely is it that likely customers/clients would see the ad at the track (b) evidence that business was actually gained through this method of advertising.
I think if I plastered my enclosed trailer (when I get it) with advertising, I could prove that this is being seen by potential customers. I suppose we would have to keep track of where our customers heard about us - especially those who saw the race trailer or bike.....

QuoteYou can claim your expenses as a serious hobby (I forget the form number), but your losses are limited to your earnings.  

This is what an accountant told Walter (CCS #301).

Title: Re: Racing as a business
Post by: H-man on July 28, 2004, 01:34:26 PM
QuoteI think if I plastered my enclosed trailer (when I get it) with advertising, I could prove that this is being seen by potential customers. I suppose we would have to keep track of where our customers heard about us - especially those who saw the race trailer or bike.....

Exactly, start keeping track of how new customers heard about you.  A little pencil whipping could easily have your trailer as your 2nd or 3rd best source of new customers (not that I'm advising that mind you  :-X ;))

Price out what a billboard or full page ad in a local, large circulation publication and make your advertising expense appropriately match that.
Title: Re: Racing as a business
Post by: Chuck on July 28, 2004, 02:10:50 PM
I started an S-Corporation for my Rep Firm, and I use Racing as a "Marketing Expense".  According to my tax attorny I can spend as much as I like on "Marketing"  ;)
Title: Re: Racing as a business
Post by: MELK-MAN on July 28, 2004, 02:14:20 PM
QuoteI think if I plastered my enclosed trailer (when I get it) with advertising, I could prove that this is being seen by potential customers. I suppose we would have to keep track of where our customers heard about us - especially those who saw the race trailer or bike.....


This is what an accountant told Walter (CCS #301).



advertising on the trailer.. your advertising your business. I had some stickers made up as well. I have actually gotten some appraisals from friends i race with !! (and a shameless plug for finishes at Daytona ROC..) ;D
(http://img52.exs.cx/img52/9533/MVC-009F2.jpg)
Title: Re: Racing as a business
Post by: flccs90 on July 28, 2004, 02:43:24 PM
BtW thats Greg on the left....Who I might add is just flying lately. Nice job last weekend you are now at the top-o- the expert class Damn 5th in shoot-out on 600 you da man!
Title: Re: Racing as a business
Post by: H-man on July 28, 2004, 08:48:08 PM
QuoteI started an S-Corporation for my Rep Firm, and I use Racing as a "Marketing Expense".  According to my tax attorny I can spend as much as I like on "Marketing"  ;)

Hey, it's just li'l ole me ;)  However, I strongly recommend that you get another opinion before following that advise literally.

For one thing, there is the school of thought that, like in sports, all is legal until you're caught.  So you may choose to do whatever.  But if you are audited....

Ask your atty to look into the tax court case of Peter Brallier.

If you are audited, you're likely to argue that you made ordinary and necessary advertising expenses.  The IRS will contend that the area you chose to advertise is beneficial to you, may/may not be of a related field to your business and distance may play a factor to make advertising not realistic (e.g., the tracks you race are at least 3 hours from your landscaping business), therefore they will say the expenses s/b reclassified as constructive dividends from your corporation.

Another measure the IRS will use is examining the amount spent for marketing by similar businesses.  Let's say that's 4% of revenue, then you'll have a hard time justifying spending significantly more than that for your business.

Damn!  I should stay at that Holiday Inn more often, eh? ;) ;D

H-man
Title: Re: Racing as a business
Post by: motomadness on July 29, 2004, 05:04:20 AM
Just bought the books.  Hopefully I'll glean some useful info from them.

Maybe my business will be to rent out the books to other racers.  ;D
Title: Re: Racing as a business
Post by: H-man on July 29, 2004, 06:23:07 AM
QuoteMaybe my business will be to rent out the books to other racers.  ;D

Seriously LOL :D

You're not only a clever inventor and entrepreneur but a funny guy 8).  I gotta meet you. :)

   H.
Title: Re: Racing as a business
Post by: spyderchick on July 29, 2004, 06:24:52 AM
The cool thing about my business is it's all about the racers. So, I can deduct travel, meals, track entries, and if I so desire (I don't) my "sponsored racers" which were myself and my hubby. We don't race enough to worry about it, and it will keep me clean in event of an audit.

This means I can do the same for attended track days.

Kind of cool. So my advice would be to get a race based business.  ;D

(don't take my advice, unless it's about the safety of your leathers) ;)
Title: Re: Racing as a business
Post by: ekraft84 on July 29, 2004, 06:49:13 AM
It's doable.  I did it last year for the first time.  I had a well known accountant handle all of it, as I was a little apprehensive about doing it for the first time myself.  Anyone interested can do a search on the WERA forum, as there's more info about it on there.

Title: Re: Racing as a business
Post by: H-man on July 29, 2004, 07:10:40 AM
Hey Eddie!  H. here.

I definitely agree that it's do-able.  And very much worth pursuing.  I'm only wishing to point out that there's quite a bit to it and real homework has to be done.  Don't just take hearsay or personal vignettes as the way to go.  All to often in law and taxes, what one person does may not apply to someone else.

There are some riders/racers who have the name of a side business they own on their bike and call that legitimate advertising so they expense an entire w/e.  Well, that's fine up until you're caught.  Then it'll be a question of whether you've done your homework.  Back taxes, penalty and interest really sucks.

Basically, if your racing is a business, then it must behave as one.  Primarily this means you must be in it to make money.

If your secondary business is used to support your racing, then the amount paid to the racing effort must hold up againt some reasonable tests.  It'll also help tremendously if you can show other support for your racing or at least real effort to obtain other support for your racing.  That would help to eliminate the claim that the advertising is a rouse to hide a distribution from your business.

As a hobby, your expenses from are eligible as a deduction, but only to the extent of your race earnings (contingency, purse money).  Earlier someone wrote racer discounts, but I'm REALLY at a loss to figure out how that classifies as earnings.  Under that logic, the IRS could hit us all up big time for the personal "income" we receive when we buy items at a reduced price.

Peace.
   H-man
Title: Re: Racing as a business
Post by: motomadness on July 29, 2004, 07:23:46 AM
H-man,

I'll be at Gingerman on Sunday, then onto BHF for my final time of the year on August 26th.  See you around.

Over the winter I want to figure out some way to using my engineering degree to start a race/track day based business that can support my racing habit.
Title: Re: Racing as a business
Post by: spyderchick on July 29, 2004, 11:39:34 AM
The way you figure income for racer discounts is basically if said item is $100 and you get a 15% racer discount as store policy, then you have "Earned" $15.

I've never figured out how to properly do the accounting for this especially considering the numerous items you get at a discount.

But you have to remember that the government considers barter a form of income for both parties. Do the book work for that!

As many have said, get proper legal and professional advice because the documentation and book keeping are the most important part of writing off your race business. That way if you are audited, your paper trail is in place and you shouldn't have problems.

Title: Re: Racing as a business
Post by: H-man on July 29, 2004, 12:28:39 PM
Kinda close there Alexa.  Barter that involves an exchange of things/service deemed to be of equal value has no earning involved.  If we agree that you repairing my leathers and me cutting your grass and cleaning your home for a month is an even exchange, then no earnings.  It's when the IRS can come in an prove that our agreement has one party receiving greater value, then they say there's earnings involved.

This is why an employee's health insurance at the basic level isn't taxed, but coverage beyond a certain level is considered additional income to the employee.

That example of "earnings" based on a discount is  specious.  This would have all professional courtesies, discounts at Sam's Club, etc technically being earnings.  WHOA!

BTW, how large is your lot?  Is that grass getting long again? ;) ;D

   H.
Title: Re: Racing as a business
Post by: H-man on July 29, 2004, 12:33:17 PM
But hey, someone please prove me wrong and that racer discounts are acceptable to report as earnings (as opposed to just telling me about someone doing it).

That would be way useful info 8)  I'll be avble to generate some race related earnings to offset a boatload of expense.  Lord knows my riding ability won't be achieving the earnings. ;)

  H.
Title: Re: Racing as a business
Post by: Jeff on July 29, 2004, 01:00:44 PM
Kufalk Media...

Primary business objective - Sell advertising for motorcycle industry.

Practices - Websites & racing contingency

Received goods, cash & discounts = income (I don't enter purse classes so there is no $$ there)

All expenses go against received...  
Title: Re: Racing as a business
Post by: H-man on July 29, 2004, 01:55:09 PM
Ahhh... the genius of it.  Excellent Jeff!   Just need to make sure you place some of those ads in mediums not owned or directly connected to you.

Sort of a PR/advertising agency that specializes in placement for motorcyclist.  You'll have to tell me a bit about how this works this w/e.  One, because I'm interested.  Two, I'll give you one of my cards and it'll provide add'l evidence that the trip and related expenses are connected to your ongoing business.

  H.

Title: Re: Racing as a business
Post by: spyderchick on August 02, 2004, 05:42:23 AM
QuoteBTW, how large is your lot?  Is that grass getting long again? ;) ;D

   H.
I rent, therefore, they mow. ;) ;D
Title: Re: Racing as a business
Post by: motomadness on August 02, 2004, 01:46:59 PM
The books showed up Saturday.  I'll rent the first own for $10/week.   ;D

Hopefully, I'll get a chance to read them this week.  I'll let you know what I think.
Title: Re: Racing as a business
Post by: H-man on August 02, 2004, 02:24:05 PM
Read The New Racer's Tax Guide first.    IMO  8)

  H.
Title: Re: Racing as a business
Post by: spyderchick on August 02, 2004, 05:11:42 PM
What? Old racers don't have to pay taxes???? Yippeeeee! ;) ;D