I know this has likely been discussed before and I tried the search feature which turned up nothing. Any of you serious racers take a tax deduction for your racing expenses? I am thinking about doing this for the first time ever and would like some real world input.

don't do it unless you do it professional/full time, its a hobby, i had a IRS audit and had to pay back 3 years deductions
gary

I believe that the name of your company or services have to be on the side of the car to prove that it is used as an advertising towards your company.

Bob

You have to treat it as a business and have the goal of generating revenue/income.

I raced for a few years, got audited and won. It all in your business plan, accounting, execution and presentation at any subsequent audit. If you do get audited and they determine you have no bona-fide goal of generating income, you get hit with the "hobby" label.

There is plenty of bad info out there, including in this thread. You don't have to do it full time and the name of your company or enterprise does not have to appear anywhere on the car.

Better consult a tax attorney or CPA. This is too potent an issue to be decided by "I heard" or "I think".

I have a friend who was hit bigtime by the IRS for what they termed an abusive tax shelter and it took him years to get back. The IRS, actually Congress, has been closing up tax loopholes for the last several years.

R.

I have done it as a hobby racer and as said before, consult a GOOD CPA. There are many things you can do and there are some things that will send up an instant red flag. The biggest thing I had to do was show a profit and pay tax on it 1 out of 5 years. Keeping excellent records is incredibly important. The biggest pitfall guys run into is trying to write off big expenses and never showing any income at all.

I was doing this before the current regime started screwing with the tax laws. A GOOD CPA will be your friend.

We do it....but ....our sales are directly related to our racing...a lot of our customers are racers...we own a screen printing...embroidery and sign shop...I have a buddy that owns a landscaping company....he wont pass mustard with the IRS.

Plus your Truck & Trailer to haul your Race car needs to have commercial plates and registered to your business. Then there is the little issue of the DOT and they will want to see your log book and your DOT number. You do have all that ?

To avoid a lot of issues we keep our rig BLANK. Nevada makes you buy permits for race rigs coming into the state. We roll vanilla white to avoid any issues....so far so good here in California.

I've done it in the past, been audited and came out of it fine. Spent 45 minutes in the IRS office and they said "OK, see you later." Granted, that was a number of years ago, things may have changed some. The auditor began by asking me questions not related to money, but more like if you were applying for a job in a race shop. It was obvious she wanted to find out if I was smart enough, experienced enough, serious about doing it for profit, and what things I was doing, besides hanging out at the track, to actually generate income. I was able to answer her questions, in detail and without hesitation, about the importance of racing to my business, the activities I was involved in and the potential to generate income as a result of being at the race track. And none of my answers were smoke and mirrors or BS.

Having a legitimate racing related business (speed shop, chassis fab, parts sales, engine builder) is a huge plus. Traveling to places where you can make money and generate business is a plus. Actively seeking marketing partners is a plus. Promoting your business and demonstrating that racing is beneficial and has a legitimate purpose is a plus. Going to the local po-dunk track to hangout, bar-b-que and race for $500 on Sundays is not what they are looking for.

You must have a good CPA, preferably one who has experience with racing businesses, you must keep good records and you have to be able to show that it is a legitimate business or part of a larger legitimate business with the potential to make money. Otherwise, don't do it.

The first question is "do you have a business which is trying to generate a profit by racing"? If you answer yes then be prepared to show the auditor your business license, your business checkbook, your business tax returns, etc. If you don't have a business license, a business name, a business checkbook, etc. then you don't have a business. You have a hobby. If you have a business checkbook and you can show income as well as expenses then you have a decent argument.

This morning I was on the fence. Tonight the question has been answered. Great info here...especially how so many of you got audited. I could get a business license, checkbook etc but it just isn't worth it to me especially, it seems, that it isn't if but when the audit letter comes from the IRS. Even if I'm gold on the record keeping and intent I just don't want to make that trip. Thanks again everyone who responded.

Not trying to talk you out of it if you are legitimate. Only you know the details of your operation. The fact that you felt the need to ask is kind of a clue though.

If you are racing on a serious basis, traveling to places where you can make money, winning some races, getting some financial help, treating it as a business, plan to continue into the future, etc., go see a CPA. Get organized and run it as a business this year. If you make some money, do well and look good on paper, even if you've not made a profit, you and/or your accountant can make that decision in January 2017. I wouldn't do it in 2016 without having done it correctly the entire year.

Bob,

Being a former CPA, I can tell you categorically there is a TON of bad info in this thread.

I would never fear an audit from the IRS. If your ducks are in order and the operation is presented as a viable business entity, you're more likely than not, good to go. Every entity on the planet has a statistical risk of an audit, just part of the game.

Rob

I was biting my tongue on this one also.....I have never been audited and had no issues claiming my racing. Then again I never got greedy either.

Bob, did you win more $ last year than you spent? If you did then you should be able to write off the racing expenses against the winings and be just fine.

My advice on operating it like a business is for the situation where your expenses are greater than your winnings. The IRS allows businesses to lose money. They don't allow a hobby to lose money. They do tax hobby earnings though.

Same thing with a lottery ticket. If you spend $5000 a year on lottery tickets you can't write it off. If you spend $5000 on tickets and win $10,000 then you only need to declare the $5000 net as your earnings.

So the rule is that you can write off expenses against winnings, but you can't write off losses. (unless you are a real business)

I race all over the country. We won the YB Nationals in Outlaw 10.5 2 years ago. My yearly budget for this effort has been 6 figures. I get no sponsorship money. It certainly is a hobby but I'm always trying to make money.

Like I said above you can write off expenses up to the amount of your winnings without any issue even if it is a hobby. It is only when you try to claim more expenses than income that you get into trouble.

A business can lose money and provide a tax shelter but a hobby can't.

Well, that certainly goes beyond bracket racing at your local track every weekend. I would talk to a tax/accounting professional. Maybe talk to some people you know who are doing what you want to do and doing it well, for recommendations on who to get in touch with in your area.

my tax person lets me right off expenses against the 1099 i get, thats good for now