Racing and Taxes??? Any good tax knowledge people

[NightHeat]

Just wondering if anybody uses their race expenses for any tax deductions.  Like tires, entry fees, mileage to and from the track, food?

[funsizeracing]

Since my parents co. "sponsors" me, they use it for tax deductions.

[George_Linhart]

Lots of factors here - if you are serious about it you really need to spend the money and get a tax lawyer and CPA to work you through the program to make sure you get it right.

Here is my very basic understanding:

If racing is considered a "hobby" you can only offset the expenses only against income generated by the activity.  If you win enough contingency or purses and have the organizations report the winnings to the IRS (I think its via a 1099 form) you can feel free to deduct an equal amount of cost but no more.

If racing is your occupation or is a part of a genuine business activity you might be able to deduct these expenses.  However, if you can not show a detailed business plan and evidence a very strong attempt to make a profit from the sport of road-racing if you are faced with an audit the IRS will deem this a hobby vs. a business for you and will treat this as tax evasion for amounts deducted beyond actual winnings.

You "might" get away with fully deducting the costs for 1-2 years and just claim it was a failed business venture (sole proprietorship), but that might still get disputed in an audit.  Basically, if you habitually lose money at anything without strong evidence that you treat it as a serious business you will be screwed.

There are some ways to get around it - particularly if you already own another profitable business and were to "sponsor" a race team (it could just happen to include yourself) as a part of an advertising budget.  However, this could have its own risks.  If you start a business - you would still need to show that you are attempting to generate a profit and that the racing activities somehow fit in to the business...

Others might have more to say...

George

[r1owner]

Pretty much what George said.  If you're in an audit, you better have a pretty damn good reason as to why you're spending so much money on "sponsoring" a team. 

I just went through an audit a couple of weeks ago.  While it wasn't jail time, it wasn't the most popular thing I've done either.

[funsizeracing]

We lucked out there.  Since it's a tool and die business there could be legitmate profit possibilities from sponsoring a 'race team'

[dicatirider944]

It will usually only work if you have a good potential of customers in the field. IE: you sell something that pertains to bikes, tools, supplies that racers use or the customer base you are trying to reach will be at the events.  If it was just local racing like dirt track, MX races, Oval racing that they race at the same track ever weekend your business could be anything and you could use it as advertising and probably get away with it.

[r1owner]

It will usually only work if you have a good potential of customers in the field. IE: you sell something that pertains to bikes, tools, supplies that racers use or the customer base you are trying to reach will be at the events.  If it was just local racing like dirt track, MX races, Oval racing that they race at the same track ever weekend your business could be anything and you could use it as advertising and probably get away with it.

Yep and you can be DAMN sure the IRS is going to be ALL over you in regards to how you came up with the numbers to justify it.  So, you better have something well researched and justified.

[tstruyk]

oh like you know or something... 

[Jeff]

Again a TAX ATTORNEY is the correct approach.

I used racing as a very large portion of my media business.  It was written into my customer contracts that I would be racing.  They were paying advertising for me to be there, and it was an expense of the business.

Nonetheless, you can't simply lose money forever in a business centered around racing.  You'd better show a profit after 3 years or you can expect a letter from the IRS giving you an audit date...

Bottom line, yes, it can be done.  It can be done legally.  You just need to understand exactly how, and for me, I wouldn't simply rely on internet knowledge for that.

[Helmsman]

Hmm I really do need to find a tax lawyer/cpa to talk about this.  I race for a team that is set up as an LLC.  I am planing on starting up my own LLC for side work i do (unrelated to racing) wonder what the logistics of having my company "sponsor" the race team and working some tax magic there.  :)

[Ducmarc]

as long as your business can support the advertising expense. ie the racing team .my team takes up most of my advertsing budget. it also took several years of hard work to get to that point.don't forget to pay sales tax on all parts even if you have a tax number becuase your the end user.

[YellowDesmo998]

I talked to my CPA about this in the past.  I have a business as a sole proprietor and asked if the business can "sponsor" me.  He said the loss the business would see would have to be claimed as personal income.  In the end it was a wash and not worth raising any red flags for the IRS.