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  1. #1
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    Default racing and taxes

    How do small race teams deal with sponsorship money and taxes? It's about as non profit as you can get but is it in the governments eyes? Are companies sponsoring race teams able to write the money off?

  2. #2
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    If you run your team as a business you can take your expenses off your gross income but you must report your income.

    Yes sponsors can claim advertising as a business expense.

    The IRS likes to see you make a profit at least once every five years ...expect an audit of your numbers are way off.
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  3. #3

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    I'd imagine a lot of it is hidden when sponsors purchase engines, chassis, haulers, etc.

  4. #4
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    Quote Originally Posted by Krooser View Post
    If you run your team as a business you can take your expenses off your gross income but you must report your income.

    Yes sponsors can claim advertising as a business expense.

    The IRS likes to see you make a profit at least once every five years ...expect an audit of your numbers are way off.
    It's even a bit more restrictive than that... You can not take a loss for three consecutive years or for three years out of five (rolling window).

    Not to say you can't report a loss every year... It's just that a business that is constantly losing money is a major red flag for money laundering and other shenanigans. That's why you will get an audit. And although if you are legit, the audit won't turn up anything, it's still a major pain in the butt.
    It ain't broke, it just lacks Duct Tape

  5. #5
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    Krooser , thats the way it is here as well , except , if you dont show a profit in 7 years , you are automatically classified as a hobby , same as with horses , then it reverses and you pay taxes on every thing you spend on said hobby....

  6. #6
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    Oct 2017
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    As far as income goes as long as you can show you spent more than you earned you don't pay any taxes on said earned income. A freind that used to own a traveling operation once said an advantage for a sponsor is if they write you a check for x amount they can write off double that number claiming they gave you product or tools or other small items from their company that were useful to you. I have never spoke to my accountant directly about this. Most people i know the sponsor writes it off as advertising and most of them are so small that they don't add up to much. Another thing is say a guy pays for your wrap. Usualy he writes the check to the wrap guy so the money was never technically income of yours so you don't have to claim it

  7. #7
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    Quote Originally Posted by DIRTisREALracin View Post
    It's even a bit more restrictive than that... You can not take a loss for three consecutive years or for three years out of five (rolling window).

    Not to say you can't report a loss every year... It's just that a business that is constantly losing money is a major red flag for money laundering and other shenanigans. That's why you will get an audit. And although if you are legit, the audit won't turn up anything, it's still a major pain in the butt.
    Not necessarily true. I can point you to many legitimate successful businesses that claim losses multiple years in a row. Which depreciation rules as they are it's pretty easy to get a loss and be in compliance with the laws.

    Plus there are ways to structure your entity so that Hobby Loss rules do not apply.
    Last edited by cjsracing; 09-24-2020 at 09:36 AM.

  8. #8
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    Quote Originally Posted by Jking24 View Post
    As far as income goes as long as you can show you spent more than you earned you don't pay any taxes on said earned income. A freind that used to own a traveling operation once said an advantage for a sponsor is if they write you a check for x amount they can write off double that number claiming they gave you product or tools or other small items from their company that were useful to you. I have never spoke to my accountant directly about this. Most people i know the sponsor writes it off as advertising and most of them are so small that they don't add up to much. Another thing is say a guy pays for your wrap. Usualy he writes the check to the wrap guy so the money was never technically income of yours so you don't have to claim it
    You can't write off hobby expenses anymore. That changed when Trump raised the standard deduction. You still have to report hobby income over $600 in a year.

  9. #9
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    Sep 2020
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    good stuff guys. So your race team has to be a registered business, you can't just start racing and collect receipts for stuff. Sorry for the stupid questions but know nothing about this and am researching for the day I finally man up and get a car.

  10. #10
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    Ha...who makes a profit dirt racing?

  11. #11
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    Quote Originally Posted by mcarter815 View Post
    You can't write off hobby expenses anymore. That changed when Trump raised the standard deduction. You still have to report hobby income over $600 in a year.
    I'm not an accountant but i know we did not have to pay income tax on our hobby income because we could show that we spent more than we made. I was told it's 1-1. If you won a dollar but you could show that you spent a dollar to win said dollar it's not income. I don't know wday that's classified as but it's never been a problem

  12. #12
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    I have been writing my race income off since 1986 as a hobby. Each year total income from winnings is added to sponsor money to find gross. I write that amount off as expense. So net income is zero. Easy to do on Schedule C EZ. Those three lines is all that is required on it. The government understands racing is an expensive hobby but a near impossible business.

  13. #13
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    We're all this gets tricky is for the guys that do it for a living. The guys out there on both outlaw tours and Lucas tours. It no longer can be listed as a hobby. Then you need payroll records and so much more. I no of a family backed team that was on the lucas tour. The race car never existed. They ran the hole deal through the family business as advertising dollars spent and the team employees recieved a paycheck from the family business. There are ways to race and work around the tax laws. But you better have someone that knows what there doing. If you are selling items. Tee shirt trailers to chassis manufactures. That opens up a completely different tax filling. In the end the government gets there money. They audited me, I had a firm doing my tax filling, they were in my business for 4 days. Every single piece of paper was looked at. Never looked at my business taxes, but because we were a supplier the race team was totally seperate. In the end it cost me 10 grand because they said I couldn't right off the mileage on the tow rig twice. Even though it was used daily in the business, then seperated, and wrote off again when towing the race car. IRS folks have no sense of humor.

  14. #14
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    Quote Originally Posted by Jking24 View Post
    I'm not an accountant but i know we did not have to pay income tax on our hobby income because we could show that we spent more than we made. I was told it's 1-1. If you won a dollar but you could show that you spent a dollar to win said dollar it's not income. I don't know wday that's classified as but it's never been a problem
    I guess you can write off hobby expenses as long as you are doing itemized deductions. I thought it was completely done away with. I haven't been able to itemize the past couple years, so it doesn't make a difference for me, anyway.

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  15. #15
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    Quote Originally Posted by Jking24 View Post
    I'm not an accountant but i know we did not have to pay income tax on our hobby income because we could show that we spent more than we made. I was told it's 1-1. If you won a dollar but you could show that you spent a dollar to win said dollar it's not income. I don't know wday that's classified as but it's never been a problem
    I am a CPA and have my own practice. A lot of people just offset their race winnings (they receive a 1099 from the track) with equal expenses on Schedule C or CZ. Others actually setup LLC partnerships, S-Corps, or Corps to run every thing through. I am a lot less conservative on this stuff than other accountants, because I feel I have researched it enough and found ways to substantiate racing as a business even if losses are involved.
    Last edited by cjsracing; 09-25-2020 at 08:56 AM.

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