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Author Topic:   Racing as a "Business"
racin78p
Dirt Freak

Total posts: 333
posted January 21, 2005 04:37 AM  
How many of you guys (and girls) out there have set up their racing as a business for tax purposes? I am going to do so soon, and was wondering if there are any pit-falls to be careful of, or any advice you may have. What say?

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racin78p
if it ain't fun, then don't run

sjakes
Dirt Freak

Total posts: 254
posted January 21, 2005 05:28 AM  
I have it setup as a business. Obviously my business will never make money....lol.

Seriously although, you can set it up as a business to defer costs on truck/trailer/car/tools/expenses/mileage etc. The catch is every so many years you have to show a profit or you'll have your but in a ringer. I pay an accountant to do my taxes just to make sure if I get audited I'll be covered legally, but overall it has really turned out to be a plus to do it this way for me.

I would talk to any accountant in your local area, luckily there is one in my area that does a half dozen of the local racers so she knows all the legal loopholes. Make note although if you use H&R Block, they won't even consider doing it for you.

Good Luck!!

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rico 08
Dirt Forum Champ
Total posts: 1139
posted January 21, 2005 05:44 AM  
BUT...if you can show it as being a tangible loss as in an unavoidable expense put you in the loss category my accountant told me you can be in the red every year.

Pigpen
Dirt Maniac

Total posts: 141
posted January 21, 2005 06:13 AM  
H&R block wont do it, or your accountant wont? If so, does h&r do something wrong?

Speedracer92
Dirt Full Roller

Total posts: 70
posted January 21, 2005 06:58 AM  
My tax preparer is an accountant for a big firm in our area and is supposed to be one of the best around. I've tried to talk her into it but she plays it straight which is probably a good thing. Anyway, she told me the hard thing to do is prove to the IRS (if you ever got audited) that your racing is a legitimate business and not just a hobby. if it is a hobby, you can't claim anything. sjakes is probably right, somehow you have to show a profit once in a while to try and make it an actual "business". i don't think i could ever show a profit from it though!

allzway
Dirt Maniac

Total posts: 136
posted January 21, 2005 07:20 AM  
I operate my racing as a business also.

The key is that you must show the intent to make a profit. You don't have to be a good business man, but you must show you are trying to earn a profit.

My accountant says that you must maintain detailed records in the event you are ever audited.

You should buy this book and read it a couple of times.

http://www.speedwaymotors.com/xq/asp/strBase_List./hilt./source.2191/base_no.91085090/str_base_no.91085055%2C91085056%2C91085058%2C91085060%2C91085062%2C91085064%2C91085066%2C91085 070%2C91085073%2C91085075%2C91085076%2C91085077%2C91085078%2C91085079%2C91085089%2C91085090%2C91085093%2C91085094%2C91085095%2C91085102%2C/header_title.NEW%21+Race+Products%2DBooks +%26+Manuals/page_name.prod%5Flist%5Fdisplay%2Easp/search_type.L2%7E258/search_option./deptsearch./deptSearch_id./dept_id./dept_id_p.2/dept_name./dept_name_p./ShowImages.yes/sq.20/ cont.1/intPgNo.2/redirect./qx/product.htm

[This message has been edited by allzway (edited January 21, 2005).]

juliaferrell
Dirt Freak

Total posts: 370
posted January 21, 2005 08:03 AM  
I'm an accountant and have been for many years. If you've ever been audited for something that you "KNOW" you've cheated at your in for something "SPECIAL"

There are many that race for business purposes......"all those sponsors that kick in stuff" Many racers have businesses of their own ie: muffler shops, automotive repair, body shops ect......You could filter your profit through advertising to fund your racing...........report it on a net zero return for racing...........((I'm not totally recommending any of this personally just providing information))

You must be out for profit making.....Your net profits over a five years span should exceed net losses.........***Going Concern Assumption*** assumes that a prudent person wouldn't be losing money in business THEY SHOULD GET OUT!!! But you could be a research and developement company to discover future products??? Better shut up. "NOT MANY LOSSES ARE UNAVOIDABLE" especially in racing.........


wissotastreet53
Dirt Full Roller

Total posts: 27
posted January 21, 2005 05:57 PM  
as long as the tracks send you a 1099-misc
you may deduct the expences you accumulated to earn the money if you dont get paid its a hobby if get paid your a profesional

Eljojo
Dirt Forum Champ
Total posts: 968
posted January 21, 2005 06:19 PM  
Kind of hard to show an intent to profitwhen you are running a track that pays $200 to win for a 18 race seacon--and you spent $5000 getting there! But, (and this is my question) What if you enter a couple of $10,000 to win shows? Looks to me like you would be intending to make a profit--???

wissotastreet53
Dirt Full Roller

Total posts: 27
posted January 21, 2005 06:27 PM  
your intent to make a profit is based on a 5 year term

hoosier transplant
Dirt Maniac

Total posts: 104
posted January 21, 2005 06:47 PM  
With the savings you save in deducting losses for 4 or 5 years you will be tax dollars ahead by just claiming a nominal profit one year and go back to showing loss for another 4 or 5 years. Everybody knows that a business doesn't necessarily make a profit every year.

juliaferrell
Dirt Freak

Total posts: 370
posted January 21, 2005 07:13 PM  
As you can see I said "net profits against losses for a five year period......." You can make 100,000 one year and lose 24,000 the other four. You would net 4,000 profit over the 5 year period........

Our tax system is a "honor sytem" that is the federal government accepts every return as being honorable and acceptable. Until.................they deem otherwise......then your guilty til proven innocent!!!!!

Walk into an audit with only..........and I repeat...........ONLY........the information for the line that they are auditing........That will be the best free advice you will ever get.... if or when that time ever comes........If you walk in there playing stupid you'll be fried.........

crc1124
Dirt Maniac

Total posts: 143
posted January 21, 2005 07:35 PM  
Hey juliaferrell do you need the track to send you a 1099? And do you need to set up a separate bank account for the business? And would you claim this as self employment?

stockcar5
Dirt Forum Champ
Total posts: 578
posted January 21, 2005 07:42 PM  
what happens if you race for 2 years, take a year off and then start racing again? do your 4-5 years start over?

also is the only penalty getting your refund revoked for that year (assumming you didnt lie about the money spent)? can they take back the refunds for the past years?

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www.geocities.com/dirtstockcar5

Blind Barney
Dirt Maniac

Total posts: 120
posted January 21, 2005 08:16 PM  
#1, get a friend who owns a business to write you a cheque for $10,000 then cash the cheque and give the money back to him. Don't claim more than $10,000 in expenses, you did him a favour by having an advertising write off and it cost him nothing and he gave you enough to show a minor profit.

#2, get a friend to sponsor you $12,000, cash the cheque and give him back $10,000.

#3 Run it all through your business with the business owning the car.

Eljojo
Dirt Forum Champ
Total posts: 968
posted January 22, 2005 06:54 AM  
This is the way my accountantand suggested to handle my particular situation: I own a construction company. I set up the car as a business (DBA) Every week my construction company hires a professional driver (me) to race the car. At the end of the year the race car business makes a profit. I don't need to get a 1099 on any money I personally made from the construction company. The construction company "writes off" the wages paid to the driver as advertisement. I THINK that's how we do it...

[This message has been edited by Eljojo (edited January 22, 2005).]

BK19
Dirt Freak

Total posts: 477
posted January 22, 2005 03:43 PM  
The track is required to send 1099's for all receipients receiving $400 or more during that tax year. You do not need to receive the 1099 as a requirement to report the income!!!! Looking at Schedule C you see 1099 misc income and gross receipts. Gross receipts is where you report all income other than 1099 income. You are required to fill out Schedule C if you have more than $400 dollars in Misc. Income. You do not need to keep a separate bank account but that is recommended. Take note on what the contractor is telling you.......But his tax advisor hasn't informed him of the "related party" transaction clauses. It works however if his contracting business is a Scorp or Corp or LLC with K-1 *what I call it for simplicity* then an officer of the company is subject to the "related party" transactions **ie he owns racing business that his corp is advertising through** This falls under related party issues.

These things are alot easier to dream up and do than it is to explain why you done them to the IRS. Back to the point I make about profit motive........."geniune" going concern issues that are inherent.

***As to the DBA situation: If you got audited you would be in trouble.....Your race car business would have to give the 1099...The money you earned there would be taxable to you personally.....Your personal tax situation is entirely different than business..........different tax entities.***

hobby10k
Dirt Freak

Total posts: 226
posted January 23, 2005 04:41 AM  
see I was wondering about this also and was talking to my dad about this. he said one of the guys at the track was goign to make his racing a business but figured that it wouldn't work out.
Now it seems that lots of people are doing this, and I would like to learn more about it. is there a paticular place that I can go to find out more info on this?

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LIVE RACING, WHAT ELSE IT THERE?

mod70
unregistered Total posts: 226
posted January 23, 2005 09:08 AM           send a private message to hobby10k   Edit/Delete Message   Reply w/QuoteBBBBBB
When I looked into this, I found out that I could go one of two ways, as a bussiness or a hobby. The difference between the two, as I was told, is that as a bussiness you can write off your expenses for 3 of 5 years before you can't show another loss. As a hobby you can write off expenses that total your income so that you show a zero net gain, and you can do this for as long as you like. The thing that you have to decide is, is it worth more to you to write off 3 large sums of expenses, or many smaller sums. In my case I decided that the inital expense ($40,000 in 3 years) was worth more just because I got a late start in racing and probably won't be able to do this for a long time. I also realize that as I race the yearly expenses would get less as I tear up less equipment and have to buy fewer tools and the like, and my income would go up as I earn more by finishing better and picking up sponsors helping to offset some of the expenses. If I was planning on racing for 20 or more years it probably would make more sense (and dollars) to have listed it as a hobby. If you figure you can average $2000 in income for 20 years, it would equal the $40k inital investment (in my case).
One way or another, the goverment gets theirs!

racin78p
Dirt Freak

Total posts: 333
posted January 23, 2005 06:54 PM  
Thanks everyone for your posts. I didn't realize,.... Race On!!!!


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racin78p
if it ain't fun, then don't run

Mikey14
Dirt Freak

Total posts: 265
posted January 24, 2005 09:54 AM  
so I'm curious, when filing what business code do most of you list your business as?

    

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