Hey guys, wondering how it works from a tax standpoint. I told da boss, i was willing to take a small cut in pay if he would return the favor and cover my racing costs. Do you guys set up your race teams as non profit orgs or what....basically, how do you claim (personal income, etc) the money sponsors give you when it comes to racing?
Unless you're planning on forming a buisness that can at some point turn a net profit, you use the "hobby" portion of Schedule A to claim all income, and deduct all expenses up to the amount of your earnings. Basically, since you're bound to spend more than you earn ... you don't pay taxes on the earnings. You can not deduct more than you earn. If by chance you actually make more money than you spend (not likely), it is capital gains and would be taxed at a fixed 20%. http://www.irs.gov/businesses/small/article/0,,id=99239,00.html - Roach
Write off your racing I have been writing off my racing since 1999. This will actually be my fifth and final year for awhile. (after five years of losing money, the IRS gets a little suspicious) I started writing it off because I secured significant cash sponsorship and did not want to get hit with a tax penalty. Every year I've been taking a loss, several times over $5,000. Definitely helps on my yearly tax bill. I have an accountant do my taxes (I own a home as well, but I've used the accountant ever since I started writing off racing). It's just a 1040 form. But I provide the accountant all expenses summed up, and I keep all my receipts. Its all legal and a nice way to save a few dollars. Damian Dobosz WERA EX#110
So you guys would just recommend starting up a non profit organization, and going from there..as long as i don't make a profit...which i won't
Recommendations I recommend just filing the additional 1040 form. I don't (and neither does my accountant) see the reason to create a seperate entity. You file it as a hobby and reduce your overall taxable income. Quite a savings usually. Damian
No. It's a hobby write off. I get X dollars in sponsorship and write off X and then some. I don't lie or make anything up, just in case there ever was an issue, and I keep all my receipts (and cc statements). But I've done it four years running now and no problems. My accountant did say that this year should be the last for a little while, as after five years, the IRS might not be happy if I keep it up. I guess they expect that you'll stop any hobby that continually loses money. Silly IRS. Damian
Then your accountant is doing something different. You can't deduct more than you make under the "hobby" (Not-for-profit activity) rules. Publication 535 outlines this. Your total deduction is limited to your total earnings derived from the hobby, and you can't offset other income with hobby expenditures. If you're deducting it as a personal business (which is where the whole 5 year thing comes in), then you risk the chance of being audited and losing if you can't show how your activites could at some point have made a net profit. You don't actually have to make a profit, as not all businesses do, but you have to show you had a feasable plan of action that could have led to making one. Of course ... the chances of being audited are slim, and the '98 law that puts the burden of proof on them instead of you helps ... but I've always not wanted to screw with the IRS myself. - Roach
Since I am not an accountant, then perhaps I misspoke on the exact legal/tax terminology, hence, the use of a registered CPA. It's his issue with the IRS if its wrong (as I have not given him misleading information). As far as proving that it was a legitimate attempt at making money, I can point to Suzuki contingency (I have won some, not a lot, but some), purse paying events, etc. I do a lot of work to get find/attract/keep sponsors, so I could justify this large event or that as a vehicle towards getting more sponsors (breaking even at least). Yes, it's a stretch, but I do believe enough to show an "attempt" at making money. Either way, I've been doing under the watchful eye of a pretty good tax accountant. Damian
I agree, and I don't think you'll ever have a problem ... me thinks the IRS has much bigger fish to fry than us racers deducting a couple thousand in racing expenses I was just happy with claiming it as a hobby to offset any income from it and not worrying about it. I just wanted to point Green in the right direction - the not-for-profit activity deductions and the way you're doing it are two different things. - Roach
For those of you approaching the sponsorship/cut in pay route with your employer or other source of income ... be sure to double check your health insurance policy, as most decline coverage once you are being "paid" to participate in sports such as motorcycle racing.
Sorry ... I read something wrong going through the publications for Green. If you sell anything for a profit in the course of your hobby, you are supposed to declare it as a capital gain. Since I can't think of anything that appreciates in value in our "hobby" (The bikes certainly don't), it doesn't apply. Any earnings beyond the deductions are plain old taxable income. - Roach
I write off all the racing expenses under "melk-man motorsports".. its a business expense in the intrest of getting real estate appraisal business and racing is an "advertising" expense.. i have actually gotten a number of appraisals as rider friends have refinanced homes and needed home appraisals.. this is different from the "hobby" rules i guess. ALl the contingency money gets taxed as income i believe.
