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Late Model Racing Hobby or Business in eyes of IRS?
I have had 2 CPA's say it is a hobby and not to try deducting it but a tax preparer say it's ok, whats your opinion? Hows Levenworth in the winter?
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If you have a full time job, it's hard to deduct it as income. You can try it but after 3 years the IRS doesn't care, if you don't show a profit, it's a hobby
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even if you don't after 3 years turn a profit, it is not cut and dry you are a hobby. If you can prove that you are trying as hard as you can to turn a profit they can and do let you stay a business longer. Business cards, a well-maintained set of books, a separate business bank account, current business licenses and permits, and advertising will all be needed to pull this off.
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my cpa told me don't put any thing in my own name so you don't own any of it. You are just are a sponsor. Worked great for me for 10 years my son raced go karts on a national level. Everything I bought was in his name even won a few money races ($1000 plus). No issues
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My experience is you can deduct expenses equal to the amount of your winnings without problems but you get in to the hobby/business problem when you try to offset other income with the racing expenses.
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the problem is alot of people try to show 0 and then get into trouble,you can't have a new house,cars,and 50,000 worth of racing expenses with out showing you made some money,just don't bs them and you'll have no problems
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Originally Posted by J20in1st
even if you don't after 3 years turn a profit, it is not cut and dry you are a hobby. If you can prove that you are trying as hard as you can to turn a profit they can and do let you stay a business longer. Business cards, a well-maintained set of books, a separate business bank account, current businegotss licenses and permits, and advertising will all be needed to pull this off.
That worked for me. I got audited twice and no problem.
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It depends on each situation. I have some tax clients that it is a business and some it is a hobby. If you want it to claim it as a business I tell my clients to set it up as it's own legal entity and don't use a Schedule C on your personal return, that way it gives more of an appearance of being a business. I don't put much emphasis on the 3 out of 5 years turning a profit guidance because I know plenty of legitimate businesses out there that wouldn't satisfy that criteria.
But you don't have to take my word, I am just a CPA that races Late Models
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Originally Posted by cjsracing
It depends on each situation. I have some tax clients that it is a business and some it is a hobby. If you want it to claim it as a business I tell my clients to set it up as it's own legal entity and don't use a Schedule C on your personal return, that way it gives more of an appearance of being a business. I don't put much emphasis on the 3 out of 5 years turning a profit guidance because I know plenty of legitimate businesses out there that wouldn't satisfy that criteria.
But you don't have to take my word, I am just a CPA that races Late Models
That is a very convenient combination.
Thanks,
Jeff.
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Originally Posted by grt74
the problem is alot of people try to show 0 and then get into trouble,you can't have a new house,cars,and 50,000 worth of racing expenses with out showing you made some money,just don't bs them and you'll have no problems
Are you saying they dont even show making money at a "normal" job?
I write off anywhere from 8-10k a year for the last 3 years, i know thats not stacker trailer and super late model by any means. Fingers crossed this year seeing as i have surpassed the 3 year mark. My CPA says less than 1% of the population gets audited.
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Agree with CJSRacing
The big thing is that the government can't audit everyone (and people need to realize that just because you spent $50,000 but only brought in $10,000 in prize $$$ doesn't mean you can write off the other $40,000 that you earned at your regular job.
No different than when you win $$$ on the lottery. I can write off expenses equal to my winnings (that's why a lot of casino's have "player's cards"), at the end of the year they will send a statement that says: Winnings = XXX, Expenses/Losses = XXX (as long as those #'s are equal, you owe zero taxes. If Winnings exceed the losses, you pay taxes on the difference, If losses exceed winnings, too bad.
Now, you can set your racing operation up as a business to protect your personal property from lawsuits and such (like if you get in an accident on the highway with your rig and someone sues, they sue the company that owns the rig as opposed to sueing you as an individual).
The big thing is talking with your CPA, Lawyers, insurance BEFORE you start a race team. I'm sure it's a nighmare for CPA's to try to decipher everything when someone wants to change it to a business after the fact (you have to file paperwork to become a business).
I'd say the easiest thing is to treat it as a hobby (You can probably count on one hand the # of teams that "make money" in the racing business, and most of them have other businesses to supplement that tiny bit of income.
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