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Thread: Taxes?

  1. #1
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    Default Taxes?

    This may not be the place for this, but being new to the sport I was wondering what you guys do about your taxes and writing off your expenses?As most of you know, it takes a crap ton of $$$$ to get set up in a car. Now my accountant tells me that since I'm a small business owner, claiming the car and expenses, even as a separate business entity is a huge red flag. She advised me not to try to deduct any of it, but if I did, just try to break even.How do you guys handle your profit/loss statement concerning your racing operation?

  2. #2

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    don't deduct more than your 1099 says you made and you'll never have a problem. you can only show a loss for 3 years before the flags go up. if its not your main source of income they'll say its a hobby and throw it all out, and go back 7 years and make your life hell. this way if they ever do audit you, you still have a shoebox full of receipts you "forgot" to deduct. I personally know a guy who had to sell out his whole LM operation just to pay his back taxes when he got caught trying to deduct it all as a loss.

  3. #3
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    That's almost word for word what my accountant said. Thanks for the heads up. Uncle Sam wins again. Dang it.

  4. #4
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    Quote Originally Posted by kilroy be here View Post
    don't deduct more than your 1099 says you made and you'll never have a problem. you can only show a loss for 3 years before the flags go up. if its not your main source of income they'll say its a hobby and throw it all out, and go back 7 years and make your life hell. this way if they ever do audit you, you still have a shoebox full of receipts you "forgot" to deduct. I personally know a guy who had to sell out his whole LM operation just to pay his back taxes when he got caught trying to deduct it all as a loss.
    My accountant has helped me with my racing for years and this is a pretty good way to look at it. You can cover some costs but trying to deduct all your expenses is not going to work. Hiring an acountant is like hiring a lawyer, if it takes them more than 50 words to explain why you are right, you most likely are in trouble.

  5. #5
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    Default

    if you are in business, you can include your racing with your business as advertising and write it all off with no problem, but here's the kicker for me, a few years back my garage liability policy added a clause that said my business cannot sponsor any form of a race car, which is essentially what I was doing, now I cant put my company name any where on the car, which means im no longer advertising. I agree with the other post here, according to my account , if I claim racing as a separate entity, which is likely to always be at a loss, the flag goes up. some of you may be able to work the advertising thing, but I checked with several different insurance company's and they were all the same, so I gave up.

  6. #6
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    You can deduct anything you want. Its a matter of whether or not it will be deemed legit if you get audited.

    You cant deduct your racing as advertising, you cant sponsor yourself, that's called a hobby... that is not legit.. advertising would be something you paid to someone else like if you sponsored another team etc.

    There are ways to deduct all of your racing, but you have to run it as a business and it could be classified as a hobby by the IRS if its not your sole income. Like if you have a day job.

  7. #7

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    One year I filed under entertainer and wrote everything off. You stop and think about it that is what we do-entertain people. Never heard a word from IRS.

  8. #8

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    If you run your racing as a business for profit you can write off whatever you want, but can only show a loss 3 out of 5the years. And you need to run it like a business, and show that you are "trying" to make money, keeping records and reciepts of any schooling,trade shows,or consultation help ect to help prove you are wanting to improve and make money. Also race flyers that show payouts need to be kept to prove that if you won you could come out ahead. It is very difficult for the weekly racer to do, so most wont do it and just file it as a wash and dont write off more than they make.

  9. #9
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    Default

    You most certainly can sponsor yourself if you have a business. But if you aren't incorporated and simply file your business taxes on a 1040 schedule C there really isn't anything to be gained by doing it. You have to claim the sponsorship as an expense for your business and then as income for your racing so it's a wash.

    If your business is an LLC, that's a different story because the business's income is not YOUR income. You and the business are not the same taxable entity. There is nothing that says you can't sponsor yourself. Racers have been doing it quite legally for decades. Family businesses sponsor the family's racing team all the time and there is nothing illegal about if done properly which means claiming the sponsorship as income for the race team or racer and an expense for the business.

    If you are truly racing as a hobby, which 95% of us are, then you have to claim your winnings shown on your 1099s as income. Usually it goes down in the "Other income" (line 21 on your 1040 for 2013). You can claim expenses and that total goes on line 23 of your 1040 Schedule A (itemized deductions) but that amount cannot exceed the amount back on line 21 of the main page. You can't claim a net loss on a hobby because you spent the money by choice without the expectation of a net profit. If you HAD the expectation of a net profit, then you can do it like a business and claim expenses that are greater than your income from it. But this is where running it as a business will bite you if you never really make money because the IRS will soon recognize that you're either suck at business or aren't really trying to make money. Either way, they'll come after you.

    Technically, if you have sponsors you are also supposed to claim that as income but if it's a cash exchange between you and the sponsor there probably isn't anything the IRS will ever find on it. But if your sponsor writes-off the money they give you as an advertising expense, they are supposed to provide you with at 1099 for that and the IRS will also get it.

    Long story short is that the IRS is going to get their money out of you one way or another. If you think you can perpetually claim your racing expenses every year and claim a loss on it and use that as a tax deduction, you're setting yourself up for a REALLY big mess and it will cost you a small fortune to pay it all back (with interest and penalties) or fight them which will cost even more and you'll lose anyway.
    And if you think you're getting away with it just because you've been doing it for a few years and no IRS letter yet, you're fooling yourself there also. It takes them 3-5 years before they get around to processing under-reporting notices. I know because I got a letter THIS year about a 1099 that I didn't report from 2010.

  10. #10

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    Just ask my brother his accountant was very creative for a long time until uncle sam decided to audit his losses for so long. In the end he paid about 10k back but had deducted much more than that over the years so he was still way ahead but it was a major headache for quite some time. The irs did tell him that if he had a business checking account and a tax number they never would have questioned it.

  11. #11
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    My business is a LLC and my tax guy since 2005 who has been doing many many racers taxes for 20 years and came highly recommended, says I cant sponsor myself. Maybe that's just because its a moot point, shuffling money.

    I CLAIM every cent I bring in and send out including every sponsorship cent whether it is cash, goods or services.

    Maybe hes been doing my taxes wrong all this time, because my business sales and purses are my income and I only sign one tax return not a personal and business as far as I know. I suppose I could ask him Friday.

  12. #12
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    Quote Originally Posted by stock car driver View Post
    My business is a LLC and my tax guy since 2005 who has been doing many many racers taxes for 20 years and came highly recommended, says I cant sponsor myself. Maybe that's just because its a moot point, shuffling money.

    I CLAIM every cent I bring in and send out including every sponsorship cent whether it is cash, goods or services.

    Maybe hes been doing my taxes wrong all this time, because my business sales and purses are my income and I only sign one tax return not a personal and business as far as I know. I suppose I could ask him Friday.
    If you're just filing one tax return then your business is a sole proprietorship and your business income/expenses are counted the same as any other personal income/expenses. Only difference is they go on the Schedule-C of your 1040 which most people don't use for any reason (only if they have a business). You could legally sponsor yourself but there is nothing to be gained from it financially. You're basically giving yourself money so it's pointless to even document even for tax purposes. If your business is LLC (incorporated) that's a different story but you would have multiple tax returns if that were the case.

    There are all kinds of "legal" things that can be done but in the end there isn't much of a way to hide from the IRS. There was a fad going years back where the driver's wife owned a lot of race cars. Not sure how that was working but I haven't seen that one in a while so maybe it wasn't working. :-)
    I know I saw a guy one night pick up a check at the payout window in front of me and I could clearly see on it that it had his company name and not his personal name. I didn't know him that well so didn't ask questions but I'm sure at the end of the year his 1099 from the track goes to his business and not him. He's probably claiming racing expenses as advertising costs of some sort but then all of his other sponsors and race winnings as income. With all of his other income and expenses it would end up acting as a deduction but not enough to show a total loss for his entire business. Probably not legit if that's what's going on but not a big enough impact on his bottom line that the IRS would easily notice.
    I'm probably in the category of "risk taker" as most racers are but I don't want to tangle with the IRS.

  13. #13
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    Its a LLC I did the incorporation in 05.

    Ill pay attention Friday, maybe hes doing more than one tax return and I haven't noticed. I am not a risk taker when it comes to taxes etc that's why I went to a guy who had a history of doing lots of racers taxes.

  14. #14
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    Here is a tip. Even though IRS declares your business a hobby, you still have to offset those 99s with costs and save all the other costs for at least 7 years. I had a nightmare when wifes hobby, showing dogs started making a lot of money. they have inventive ways to estimate your profits. I was hit with a $70k bill. Them old unused bills come in handy. They sometimes can't make up their mind if it's a hobby or Business.

  15. #15
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    I am not an accountant, attorney or otherwise and this is not any kind of legal information or advice. I do own several businesses that are LLC's. The Gov't usually looks at a LLC as a "Dis-regarded Entity". When it comes to taxation I think by default you are consider a sole prop and will file a Schedule C for the business along with your 1040. BUT- you can also file/submit other forms that will make LLC be taxed as a partnership, S-Corp or C-Corp. That is what I have read and come to understand.

    Check it out with your accountant or attorney. Even some sites like Legal Zoom have some pretty good descriptions of the differences and options.

  16. #16
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    Funny how it is classified as a hobby when it helps your bottom line, but when your hobby starts bringing in some cash, well, you know, that's different. Crooks.

  17. #17
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    If you are set up as a Single Member LLC, in other words you are the only owner, the IRS treats your business as a disregarded entity and you put your income/expenses on form 1040 Schedule C. Claiming losses year after year on a Schedule C is a big red flag.

    What you could do is setup a LLC Partnership or an S-Corp. By doing this the Business Files it's own tax return either a Form 1165 or Form 1120S. Each partner gets a K-1 that shows the partners share of the profit/loss in the Company. This information then gets entered on your personal Form 1040. This is less likely to be a red flag, plus if the IRS inquires about your personal taxes the K-1 is your proof. Most of the time if the IRS inquires of your personal taxes and you show them the K-1 they will be satisfied. If you don't have a K-1 and file with a Schedule C all your income/expenses are right there for them to look at and they will. Also, you should try to run it as a Business, by this I mean get a Federal ID #, separate bank accounts, issue 1099's if you pay someone more than $600 for services, etc.

  18. #18
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    Quote Originally Posted by cjsracing View Post
    If you are set up as a Single Member LLC, in other words you are the only owner, the IRS treats your business as a disregarded entity and you put your income/expenses on form 1040 Schedule C. Claiming losses year after year on a Schedule C is a big red flag.

    What you could do is setup a LLC Partnership or an S-Corp. By doing this the Business Files it's own tax return either a Form 1165 or Form 1120S. Each partner gets a K-1 that shows the partners share of the profit/loss in the Company. This information then gets entered on your personal Form 1040. This is less likely to be a red flag, plus if the IRS inquires about your personal taxes the K-1 is your proof. Most of the time if the IRS inquires of your personal taxes and you show them the K-1 they will be satisfied. If you don't have a K-1 and file with a Schedule C all your income/expenses are right there for them to look at and they will. Also, you should try to run it as a Business, by this I mean get a Federal ID #, separate bank accounts, issue 1099's if you pay someone more than $600 for services, etc.
    I dont have a loss every year, I didn't quit my 57k a year job to be poor
    Last edited by stock car driver; 03-13-2014 at 08:56 PM.

  19. #19
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    stock car driver - I wasn't specifically responding to you. I was more speaking in general terms. If you specifically have any questions seek me out at Stuart when the Late Models are there.

  20. #20
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    Every situation is different. Using racing for advertising can be tricky. What happens when you go race in Florida or another state and your business is "mail delivery" or "muffler shop" that caters only to a dedicated route or local customers that are already defined? You're an insurance business with a territory and you race outside that territory and deduct those expenses? An effective auditor will find out.I would suggest seeking a professional *CPA* (not some quack and there are lots of them out there) and describing your situation to them and not get mad when they tell you your racing is likely a hobby. There are SOME exceptions but NOT many. Take this from my experience as I use to do 1000+ tax returns every year. There is a ton of (not a nice word)(not a nice word)(not a nice word)(not a nice word) that people are doing that won't stand water at the IRS hearing.
    BUCKLE UP NOW, YA HEAR?

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