I'm just curious if any of you have identified your racing habit as a small business. The honest to goodness no BS reason I am asking is I'm looking for ways to write off racing expenses and "in the first few years" lower the amount of taxes I have to pay.

To some of you this may sound shifty (no pun intended) and I understand that... but hopefully you'll understand that I'm a hard working fella that gets bent over for taxes BIG TIME. To me paying for unplanned children, disability for fat people, and even those tax credits for planned ruggers is just as shifty.

So back to the topic at hand... here is what I've read... you can start a racing business.... ask for sponsors, compete for cash, maybe do some consulting and afterwards you can write off "expenses" you might have encountered to get the business going. This can be done for a hobby as well but from the sounds of it you cannot claim a loss with a hobby. Anyway.... hopefully some of you folks will be able to amplify on this topic.

Again this would probably be an LLC and initially it would only show intent to make cash but would probably show a loss for about 3 years.

 

my CPA informed me when i was getting started, if i didn't turn a profit after 2-3 years, or couldn't show substantial growth (i.e. reinvestment in the business with increasing revenue), the business would be reclassified as a hobby and i would owe back taxes (every thing i wrote off the entire time i was in business) and penalties if were to ever get audited. because when i was getting started i was doing it out of my garage, he said its far more likely i would get in trouble if i couldn't prove it was a legit business. now since i actually have a shop, its not a problem.

if you were to try to using racing as a tax break, then anyone with a hobby could write off their hobby expenses, so obviously the tax man isn't going to like that

 

You don't actually have to show a profit. You have to show intent to make a profit. If you suck at it the business simply goes under.

 

Interesting...I would like to see more opinions on this...

 

I see a new thread on this every year.

You can try to work the angle, but in the end you need to turn a profit in < 3 years like mentioned. Yeah, you can operate in the negative, but would the amount of cash available if you WON your events actually get you into the green? Doubtful.

 

I have thought long and hard on the same subject. My cpa sister advised otherwise, unless your business is not intended to make money from racing...

But if the the racing is the form of advertisement for the business then I think it can be done. Get thrifty and create a clothing company... if after 3 years your failed company has yet to see a profit despite all your advertisement attempts I dont think they can get you for that.

what ever you decide I would get a lawyer involved just to make sure you are legit

 

better yet...try and actually make some money..lol..best of both worlds

 

Has anyone simply considered running it as a business, for sake of arguement say two years... then close the business. One can always start another business the following year (different name, EIN, etc)

 

This is what I do... It costs me about 1800 every 2 years with accounting fees and closing and opening business/new names/EINs, etc... But NJ is a rather expensive start up fee state...

 

You can write off everything...that is until you get audited. hehe.

You should look into other costs associated w/ starting a business in your state as well. California charges us a $800 franchise tax just to do business in the state.

The county tax people are also trying to get as much tax revenue as possible and seek an annual property tax from us now as well. even if you rent your office, they will tax you based on supplies and equipment that you have bought in that fiscal year.

One positive note is that say you get sued for an on/off track incident or death; you can be personally protected under an LLC or other corporation. Then again people can sue you personally for this as well.

 

so it costs you 900 dollars a year to write off your track stuff. at that rate you would have to spend roughly 10,000 dollars/yr just to break even from the tax benefits (although in racing, that could be considered tire budget for some). and if you were to get audited, i promise the time/effort/money it cost you to evade the tax man wont be worth it.

if your doing it as a sole proprietor (or single owner llc), you know if you get audited they are going to look back at all the years you have been starting/stopping failed businesses, your going to be totally screwed

 

I like the advertising angle.

IIRC the rule-of-thumb for businesses is that you need to show a profit 3 out of 5 years. Anything less than that will trigger audit flags.

l8r)

 

So any other info or opinions on this topic...I like the advertising angle...I have been thinking about this topic a decent amount since this thread popped up...

 

I agree w/ Kevin's statement wholeheartedly.