Racing as a business (kind of long)

While talking to some fellow racers at work the other day about taxes, the subject of deducting racing expenses came up. I myself have no desire to see an IRS dude invading any of my body cavities if you know what I mean. But I am curious how this is done legally while claiming it is a business. What are the pros and cons of this and how many ways are you opening yourself up for trouble.
The guy who is currently claiming his expenses has a small business painting/repairing cars, where his racing funds are generated. But another one is saying you can do the same thing by saving all your receipts and claiming them as your business costs because you "intend" on winning money. Problem I see is if you do not have an income from the business to support the racing costs, you are not using the businesses money for racing you are using your personal money. Wouldn't that just be the same as claiming the costs of a hobby?
So can anyone give me FIRST HAND information? Not the, my mom's sister's husband's uncle's freinds did this in the 70's, stories. Pros and cons, because I am sure there are some strict rules around this. Also, what does this open you up to while towing? Both of these guys tow with motorhomes if that matters.
Thanks, Beep

It don't matter what you tow with.

I operated my racing as a business for 9 years. I spent way more than I won and had some terrific deductions to my personal income. You can only show a lose for 5 years and get maximun deductions.

I talking some pretty big numbers like 150-175K per year spent racing and 20-40k income, made for some great deductions.

I never heard from the IRS and had no trouble.

I had a very knowelagble business man helping me do my taxes. I kept track of all my expense, from hotel rooms, food for my help to fuel to parts to entry fees, license fees, safety SFI fees everything. It's a eye opener how much is spent racing. Each run of my car cost at least 4000-5000 bucks each, I kept track, I know.

Running it as a business has nothing to do with the DOT, that's separate and the DOT don't care if your a business or not. Well they care, I never made it apparent I was racing for money to them. You never tell them your racing, just running your car at test and tunes and not for money. I never lettered my trailers, never.

I had several nice sponsors that helped pay the bills and it was all done above the board. They even asked me to letter my trailer and I said no, they understood. I didn't want to run my truck and trailer commercial by having it lettered and then the DOT looks at you much closer.

I say do it, why not??




Spend a lot of time talking with customers and sponsors, my crew did all the work on the car at the track while I took care of sponsors, not easy.

There's nothing else like having a 10000 rpm hemi screaming 12" behind your head!!

I did it too, and as Challenger said, 5 years with no profit, and it's considered a hobby, not a business. Actually, I think it's 2 out of 5 years have to be profitable. Also, I agree, you need to have a knowledgeable tax savvy person help you to do it right and keep impeccable records, or that cavity search is always a possibility. And you will be surprised how much money you pi$$ away racing.

Chances are you are not going to have someone come on a public forum and talk about how to save on taxes.

There is a big difference between operating a racing business and using the racing to promote your business. This is much easier if you are self employed.

Sometimes that writing all over the racecar isn't what it appers to be.

It is not how much you make, it is how much you keep.

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I did it too, and as Challenger said, 5 years with no profit, and it's considered a hobby, not a business. Actually, I think it's 2 out of 5 years have to be profitable. Also, I agree, you need to have a knowledgeable tax savvy person help you to do it right and keep impeccable records, or that cavity search is always a possibility. And you will be surprised how much money you pi$$ away racing.

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I would say in the 15yrs or so I have raced I have claimed it on my taxes about half...usually if I had a decent year and had receipts to prove all my expenses. If it was close to a wash I did'nt bother but I did deduct about 7-8k one year which was legit and was nice at tax time. Best advice I can give is have all your proof and don't get greedy...I know a couple who have been audited.