Racing as a business

[MELK-MAN]

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.....


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

[flccs90]

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!

[H-man]

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"  ;)

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

[motomadness]

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

[H-man]

Maybe 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.

[spyderchick]

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) ;)

[ekraft84]

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.

[H-man]

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

[motomadness]

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.

[spyderchick]

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.

[H-man]

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.

[H-man]

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.