taxes

[Rhun]

How is the IRS treating you if you never show a profit from racing? I haven't kept up with business rules for several years. Is club racing concidered a hobby or a business, by the IRS?

[dylanfan53]

How is the IRS treating you if you never show a profit from racing?  

Answer:
Like you just got caught sleeping with its wife.

Some are aggressive about this. Unless you run a related business, merchandising, marketing, service, etc. with a business plan I wouldn't be.

What're you going to tell the agent, that you intended to pay the rent with certs?

IMHO and all that.

[Fat_Nate]

I think if you have a "dba" (doing business as) the IRS does not look behind it that often.  You could set it up that way and at least make sure you're not getting taxed on winnings (because you would deduct costs equal to winings).  But even that's aggressive.  And heaven forbid you have to explain why you deducted a $20,000 season because it's advertising for . . . um . . . something?

I checked it out and it didn't seem worth it.  Perhaps we are not lobbying the right people in Congress.

[OmniGLH]

Try doing a search - it's been discussed here before.  Basically, in order to survive an audit, you need to be able to prove that you truly ran your racing gig as a business, with the sole intention of making a profit from it.  

The way to show that you're trying to profit from it is to ONLY run purse-paying classes.  Run any non-paying classes and the IRS will be able to prove that you're doing this for fun, or as a hobby... as business owners typically don't "splurge" on something unless it has the potential to improve the bottom line.   You'll also  need to be able to show that the purse you could potentially collect is greater than your expenses.  As far as I know, the only purse paying class left in CCS is Unlimited GP (and I'm not even really sure about that anymore... does ULGP still pay cash, or have they gone to certs too?)  Assuming they still pay cash... the purse is a whopping $200.  You paid $70 to get into the class... leaving $130 for actual profit.  But then you need to figure fuel, tires, travel to the track, etc.  Something tells me you can't pull that off in under $130.

There is a really good collection of books you should check out.  You can buy them here:  http://www.ssapubl.com/index.cfm?do=detail&productid=169

Good luck.

[Team20]

I am so glad you guys brought this up because my father in-law and I are looking at this for a way for him to write off expenses from his property development business. Can he write it off as advertisement? For round numbers lets say his business has $100,000 in sales, $50,000 in materials, and another $40,000 in salaries and expenses. No there is $10,000 left over and this needs to be accounted for, so he puts this toward advertisement ??? Would I have to establish an LLC or something similar for him to be billed from for advertisement?

Thanks

[OmniGLH]

I am so glad you guys brought this up because my father in-law and I are looking at this for a way for him to write off expenses from his property development business. Can he write it off as advertisement? For round numbers lets say his business has $100,000 in sales, $50,000 in materials, and another $40,000 in salaries and expenses. No there is $10,000 left over and this needs to be accounted for, so he puts this toward advertisement ??? Would I have to establish an LLC or something similar for him to be billed from for advertisement?

Thanks

You really should consult with a tax attorney.  And I'd recommend picking up a copy of those books I listed in my previous post.  It's interesting reading if nothing else.  All of my advice is coming from what I've read in those books.

It's really hard to write off racing as an advertising expense - even if you slather your bike with company logos.  Like I said before, you need to think like a business owner... a LEGIT one.  If you had $10k to advertise your custom home builders business, would YOU spend it on a motorcycle racer?  A racer who races in a club that has almost NO spectators?  Heck no.  You'd spend it in places where it would advertise to those looking for new homes.  Magazines, billboards, etc.  In other words - you need to have relevance, or a brilliant tax attorney (they're out there.)  The IRS isn't dumb.

If you owned a motorcycle shop, or a racing supply company, or a tire or fuel distribution company, etc... something where the racing community is a potential customer - then things would be different, and it'd be a lot easier to write off.  You need to keep in mind that you need to prove to the IRS that it's a profit-oriented business, and not a hobby.