[JC_595]

Hi Carl!

I have GNI Motorsports set up as a Sole Proprietorship. There are several tax advantages to setting your racing up as a business. However, you will need to contact your local/county governments regarding the specific requirements to business licensing.

Wait- arent you in da UP? If so, then email me directly & I can help explain how to set up a dba ($10) & do a simple SP.

Non-profit? I have no idea what that means. I thought rally was all distinctly non-profit.

JC
#595
www.gnimotorsports.com

 

[Jerry Brownell]

I'm not exactly a business whiz, either, but we had our team set up as an S-corp, and wrote off our losses for a few years. We dissolved the corporation this year, and in doing my personal taxes I found that I could have been it writing off each year as "hobby expense".

The benefits to incorporating your team as a business are really (a) Liability (if someone sues you, this offers some proection against your non-business personal property and (b) profesionalism -- as you say, potential sponsors are more likely to write a check to a business than to an individual.

 

[Bruce]

My first bit of advice would be to consult a local tax expert on the tax ramifications. Posters to Special Stage - bless their hearts - are not always experts in this area, and may have a lot of misinformation. Your tax expert can tell you what you can write off as a hobby business and what you can't.

Be prepared to keep good books. If you don't know how, find someone who does. Pay them if you have to.

As Jerry points out, incorporation (or Limited Liability Company) can provide some liability protection, as well as a somewhat more professional image. There are also tax advantages and disadvantages to these forms.

You'll get a lot of advice here on Special Stage - some good, some bad - but as with anyplace else on the internet, you can't tell the professionals from the yahoos...including me. Get advice from a lawyer and a tax expert before spending any money on any business.

I have some experience with nonprofit (sec. 501(c)3) applications. There's a very strict set of requirements, and I can't see any way that a rally team could persuade the IRS that it's a nonprofit (although anything's possible, I guess.)

Bruce

 

[Jens]

Deleted message

No message

 

[Bjorn240]

I've deleted a response.

Please keep responses on-topic.

Thanks,
- Christian
Specialstage.com staff

Bjorn Christian Edstrom
www.christianedstrom.com

 

[Rich Smith]

>Like I said, I dont know anything about business. I'm mostly
>looking for a good way to set up my "team" some to make it
>more organized, official, and professional looking. Any
>advice would be just peachy.

Carl,

I wouldn't recommend it for most rally people. Setting up a hobby business can be bothersome and costly in time & money. Plus you're then answerable to the bean counters. Keep in mind:

1. You Rally. Therefore you ARE as "official" as anybody else.
2. You don't need a business license to get organized.
3. Professional looking? Spend $500 on shirts & hats, stationary & graphics.
4. Use a "professional looking" website or newsletter to let others know what your doing.

But, don't underestimate the value of staying off the radar and within Rally's traditional underground / gift / freindship / barter economy most of the time. Your most important and valuable attaboy's will come from your peers anyway.

Rich Smith

Vive le "Pro-le-Ralliat"

 

[Carl S]

Hi, I've heard some talk of setting up your rally team as a small business before. First off, I know nothing about business. So I'm wondering if people actually do this and what type of benefits it might give.

I would think it would give your team a more positive image if you have, for example, checks with the team's name on it. And potential sponsors might like it better to be writing checks over to an official rally team, as opposed to just an individual.

Another thing I was thinking, could you set up a rally team to be a non-profit organization? That way any sponsorship you get could be written off as a charitable donation by your sponsor, right? Or is that kinda shady business?

Like I said, I dont know anything about business. I'm mostly looking for a good way to set up my "team" some to make it more organized, official, and professional looking. Any advice would be just peachy.

 

[Jens]

>I've deleted a response.

Yeah, mine. It was a good one too.

>Please keep responses on-topic.

Okay....

Without consulting a lawyer.... I'll betcha declaring a rally team as a "non-profit" would border on criminal activity. Consult a lawyer, and avoid using Bruce Cutler or other such lawyers as used by John Gotti and friends.

If calling a rally team a "non-profit" isn't strictly illegal, it sure is immoral and would help foster the perception that rallyists are outlaws.

 

[JC_595]

>>. Professional looking? Spend $500 on shirts & hats, stationary & graphics.

Great advice. I wish more teams would do this, as it would make the perception of the sports competition level increase (even though in reality we are still all the same folks).

Makes a huge difference to outsiders looking in tho...

JC
#595
www.gnimotorsports.com

 

[dmoser]

There are lots of ways of establishing a "business look" for your rally team. The easiest of these is to file the team's name as a fictitious business name with your county. The paperwork on that will let you open a checking account in the business name, separate from your personal account.

There are also the options of setting up your rally "business" as a corporation or a limited liability corporation (LLC). These are a little more expensive, but MAY (consult your attorney) protect your personal assets from liability. You don't need a lawyer to set up a corporation or an LLC. There are plenty of do-it-yourself books that will guide you through that process and through what you have to do to stay in good standing with the state.

Remember, though, that your greatest liability stems arises out of ownership of the car. If you think it's difficult getting liability insurance for a car registered to you personally, try getting it for a car registered to and owned by "Crashtime Racing, LLC".

As for the deductibility of rally expenses, your "rally business" has to look like a business, keep books like a business and BE RUN like a business. Then there's one little extra gotcha: Within some reasonable time frame (I think the standard is five years) your business has to show a profit or it is in jeopardy of being reclassified as a hobby, with all prior years' deductions disallowed -- with penalties and interest. That's the best you can hope for should you get reclassified. If there's no evidence that you really intended to make a profit and were just claiming false deductions for a hobby, you're at least exposed to a charge of tax fraud.

With that said, you have to get audited to get reclassified. Having a record of several years of business losses MAY increase your chances of an audit. It doesn't guarantee it.

Some taxpayers -- and some tax advisors -- adhere to the philosophy of "take the deductions now and apologize later if you have to." Others hew to a more conservative line. It's a judgement call. Get informed as to the consequences and odds and make your own judgement.

Oh, and if you figure out a way to actually MAKE money rallying, post it here. Everyone would like to know!

Dick Moser

 

[Bruce]

Then there's one little
>extra gotcha: Within some reasonable time frame (I think the
>standard is five years) your business has to show a profit or
>it is in jeopardy of being reclassified as a hobby, with all
>prior years' deductions disallowed -- with penalties and
>interest. That's the best you can hope for should you get
>reclassified. If there's no evidence that you really intended
>to make a profit and were just claiming false deductions for a
>hobby, you're at least exposed to a charge of tax fraud.

This was true several years ago, but the hobby business exemptions have changed. There is no longer a "two years in five" that you must make a profit...in fact, a business may lose money forever. That said, the IRS now requires that a business have a POSSIBILITY of making a profit...and since most rallies don't pay prize money, if your trade or business is "rallying" you can't qualify as a business.

Another option is to make your business "advertising" and that thing in the garage a mobile billboard. Then you could qualify as a business, since somebody MIGHT pay you to advertise on your billboard.

Again, competent tax advice is important. Ask some of your rally compatriots whom they trust for this kind of information.

Bruce

 

[joeg]

Bruce has summed it up fairly well. Without good prize money and huge contingency awards, you would have a big problem with the IRS in a Section 183 ("hobby loss") audit.

It doesn't matter if you are an S-Corp, Sole Proprietor (Schedule C), an LLC or a partnership because Section 183 applies to individuals and any and all so-called "pass-through" entities.

A non-profit qualifies as a preferred charity (Section 501(c)(3)) to which contributions made to it are deductible ONLY if it is qualified as such with the IRS.

The IRS reviews applications from non-profits and determines if you qualify for such status. It then lists them in a book or "publication" (and issues them a letter), all of which should be requested by donees being solicited from strange organizations.

A rally team could not so qualify for a number of reasons because it has no eleemosynary functions and is only benefitting a small number of individuals.

In other words...forgetaboutit!

 

[Bruce]

What he said.

I tried to make a few points without references to the IRC or words like "eleemosynary" and I may have rounded the corners a bit too much. Actually, I get all my tax information from the accountant I live with...I'm just a lawyer...

Briefly, then, there ARE reasons why you might want to try to change the business model of your rally team, but great care and professional advice are required.

Bruce

 

[Carl S]

Thats for all the advice and opinions, guys. I guess I'll have to look into this and contact some people to find out what would work best for my needs.

 

[Greg Donovan]

lets move in a bit of a different direction.

what if you decided to make some rally parts and sell them as part of your new rally team business?

can a rally team/parts supplier be the same business thus increasing your potential for making a profit?

then could the money spent on the rally team be declared advertising expenses.

 

[Bruce]

>what if you decided to make some rally parts and sell them as
>part of your new rally team business?
>
>can a rally team/parts supplier be the same business thus
>increasing your potential for making a profit?
>
>then could the money spent on the rally team be declared
>advertising expenses.

In the interest of maintaining my malpractice coverage, the answer is MAYBE. The business has to be capable of making a profit. The IRS does not require that you be a good businessperson, e.g. spending twice your income on advertising.

KEEPING GOOD BOOKS IS ABSOLUTELY IMPERATIVE in any of these schemes.

Bruce

 

[dmoser]

Thanks for the clarification on new hobby business standards. It's been a while since I took deductions for a "racing business" -- which, I might add, didn't get taken away in ten years.

Prize money isn't, however, the ultimate measure of whether a rally team "could" make money. (Quotes to distinguish from "will"). It's at least theoretically possible that sponsorship could make a rally team profitable. On that basis, I'd think that evidence of an ongoing, professionally conducted program to secure sponsorship, especially if it met with some success, would bolster a hobby business claim. You're certainly more credible as a real business if you can show income as well as expense.

Dick Moser

 

[joeg]

I tend to give NO as advice in the realm of trying to qualify your motorsports activities as any form of business. Of course, you can always play "audit roulette"--which if you hear someone saying they deducted everything for years has won at.

If you really think you want to try this, consider the fact that John Menard recently lost a big tax case that involved himself, his race team (IRL)and his chain of stores. While there were other issues, big race $$ expenses/losses were at the heart of the case.

They don't get much bigger.

Peddling parts is cool, but to run it as a business you have to consider sales taxes and other business registrations and the IRS question anything with a personal involvement/ pleasure element. In other words, sponsoring yourself (or a relative) generally does not fly if you get audited.

Real sponsorship does garner one deductions, but what fun is that? You want to be the driver, right?

Cheers.

 

[JC_595]

Technically, big numbers NASCAR teams (like Roush, where I worked) make their profit primarily on the marketing end, NOT the prize money.

This is how my GNI business model is fashioned.

JC
#595
www.gnimotorsports.com

 

[Rich Smith]

JC,

Your Team website is good example for others. www.gnimotorsports.com

No BS, competant, clean, and unpretetious. Easy to view and adaptable as your team moves up the chain. Photo's show a well organized operation. Bravo.

Rich Smith

Vive le "Pro-le-Ralliat"