[Yump]

I am thinking, within the next few years, of starting a motorsports (most likely ClubRally) team not only for fun, but structuring it as a business venture as to save money (through taxes, possible small business loans, etc.). Since there are contingencies and prize monies awarded for most kinds of motorsports, would this not qualify as a viable small business (since profit is the aim)? I am looking into what kind of tax breaks one can manage from this type of operation. What kinds of things can you write off, car purchase, event fees, licensing and registration of the car? And how long can your company be unprofitable until the IRS raises it's eyebrows to your operation? And how would that coinside with the taxes I pay for my day job?

I know some teams rely on tax breaks to minimize the sheer monetary impact of fielding a car in events.....so how do you guys do it? For example, I have seen Gary Sheehan's car, and the 'marketing through motorsports' angle that he takes.

I am not trying to be shady about this at all, just looking for some real world options to try and save money should I decide to get into the next level of racing, and I don't feel bad at all about using the IRS and their confounding tax laws to my advantage. Thanks for any help/experience you guys can offer me, I appreciate it.

Thanks,
Eli
:7

 

[Yump]

cross posted at NASIOC.com as well.

 

[mvb]

I have heard people setting up a "business" then writing off expenses as R&D for up to three years.

 

[Bruce]

To be able to write off expenses, a business must be capable of making a profit. The "hobby business" exemptions are gone...your business need not MAKE a profit, it just must have the POSSIBILITY of making a profit. If your business is "Rallying" and you compete in ClubRallies, you have no chance to make a profit, because what few purses there are won't even pay the entry fee.

If, however, your business is "Advertising", your rally car provides a billboard that you transport to various venues for your clients. This would provide - at least on paper - the possibility of making a profit. Just be sure your business is set up - name and all - to reflect its purpose.

Free legal advice...worth every penny. Get yourself a tax professional before trying this. Darn near EVERYTHING can be written off if it's done correctly, and your Schedule C losses can offset other income.

Bruce

 

[Charlie KA8OQF]

http://www.wwkcpc.com/professionals.htm

and scroll down to one Mary Jane Halley, CPA...there's an e-mail address there...

...and if this name sounds vaguely familiar,it's because she's the one who's kept the IRS off Mad Mike's backside for a number of years now...

...if she can keep Mike on the straight and narrow, she could probably set you up over coffee and a cruller...:7

 

[Yump]

Great input! Thanks!

 

[Rallychick from Oregon]

Going through a CPA is a great idea... even better if it's someone in your area, who specializes in small business and in personal taxes. Make sure it's someone who understands about rallying (it's great to find a CPA who actually competes or at least knows what it is we do) (even better when it's your dad!).

Lots of people use their rallying as an advertising or R & D business; some people got into rallying specifically to do these things, most of us started rallying and then realized we had to do something to be able to afford it.

Always follow your CPA's advice. Always make sure you are in close contact with your CPA about what is going on. If you wreck your rallycar at a race, your CPA might need to know about that. If you get some great sponsorship, your CPA might need to know about that. If the IRS sends you anything, send it on to your CPA without delay. Accountants and CPAs like to know what's going on, and it's much, much harder to make the taxes come out good when we're kept in the dark.

Just my $0.02, less 30% taxes.... from one who is on the inside of both accounting and rally!

KT

 

[joeg]

You may have an easier time with going "pro" as in PRO Rally, rather than "Club Rally". Why? You can always tell the IRS that "Pro" means "professional" (for money and fame; not just fame).

Section 183 of the Internal Revenue Code governs "Hobby Losses". There are many tax cases decided under that Code section involving motorsports and "advertising". The taxpayer --meaning you--generally has a tough time trying to prove profit motive, which is the key. (It is always your burden in such cases).

The prototypical case is the taxpayer with a lot of money and income from other sources using his/her favorite pastime to generate offsetting losses. If your broke, no worries; of course if your broke you won't be able to afford to go rallying.

If you treat the venture as a true business, maximize all revenue making opportunities for it, keep meticulous books and records--separate bank account-- and follow the advice of your professional advisors (CPA and attorney), you may have a chance.

As a suggestion, write up a business plan and projections and go to a bank and see if they would lend money to the venture. I do not mean to actually borrow, but to get their input as to whether or not it is a viable business opportunity.

Good Luck!

 

[Yump]

Thanks very much, you guys are awesome.

Eli

 

[jprowland]

The least conspicuous way to do this is to have another business in your name, which you advertise on the rally car. All racing expenses become an unquestioned business expense.

To have the car itself be a business will raise a few eyebrows. You may have to prove that you believe this is a viable venture. This means you have 3 sources of income: prize money, contingency, and sponsorship.

Prize money: If you assume that you'll win every ProRally event overall (yeah, right), and assume that every event pays on average $1000 to first place, you'll end up with $9000. You might be able to run a competitive car for as low as $80,000, which means you'll only need to raise another $71,000.

Contingencies: Figure another $2000 per event for first place, this is just a guess. You've knocked the balance down to $53,000. Which leaves the rest for sponsorship...

If you don't build a competitive car (much cheaper) and you're not a good driver, you won't get any prize money, so everything comes from sponsorship. But you'll also get less sponsorship money.

Other racing leagues pay out more prize money (entry fees are higher, but spectators and event sponsors pay a lot more money). They're also seen by many more people (incl. TV), so sponsors are willing to cough up a lot of cash. So, running a car as a business becomes viable.

So, you're better off setting up some other business and using the car for advertising. And as was mentioned before, my advice and others' is worth exactly what you paid for it. Try going to your local bank, chances are they have someone who specializes in loaning money to small business ventures. They can help you get started and point you to good legal and financial counsel.

--
JP Rowland jeremyrowland -at- mac.com
Visit my boring web page: http://homepage.mac.com/jeremyrowland
"Look unto me, and be ye saved, all the ends of the earth: for I am God, and there is none else." -- Isaiah 45:22