[Phlyan Pan]

Just curious how those teams with sponsorship treat the financial aspects. Let's say you get $5k a year (I WISH! I know, but hang in there). Do you have to claim that with the IRS as personal income? Do you have the team set up as a corporation or llc? Not for profit maybe? Does your sponsor just hand you a check for the whole year, or do they pay in installments? Per event? What if you have a write-off accident in the middle of a season?

 

[REDrum]

FWIW....

I work for my self and I use rally as a marketing and advertising tool. Like Dewalt does w/ NASCAR. Lots of European rally fans in high places in my industry. A % of my rally cost are expensed as business deductions, which, IMO, is far better than trying to get any sponsorship from a small game vendors (ie <$10K per year).

I see many guys, (who do not have the opportunity to self sponsor), spend hundreds of hours courting sponsors only to gain a thousand bux in discounts and free parts/services. Was it worth the time...? And then there is the big game who, if they sponsors you, they own you. I know one team/guy who had a very good sponsorship package, worked his ass off to get it and to keep it: new paint, new logos, more travel.... every weekend at the sponsors call for some store event/promo, then got dropped the next year. Saw Travis an Ken this weekend with camera crews incessantly in their faces; while eating, blowing nose, scratching ass... But I suppose those may be good problems to some people.

Keep good financial records, account for all that is rally as if it's a business, know your cost. That way if you are fast enough and charming enough for TV, you'll know what it cost to campaign a year on a national basis.

You can incorporate your rally team, but not sure what that will gain you over good insurance. Do not borrow for rally, nothing more than 30 days on a credit card. You are not going to qualify for non profit or not for profit status, unless you can claim red-mist as a religion

 

[Phlyan Pan]

Fair enough...you have a business and you operate the rally as a portion of it. That makes sense. I'm saying let's say I did find someone willing to kick in a true sponsorship.

I know it's a pipe dream, but how would it be handled?

 

[Bjorn240]

Like any other business.

You incorporate. You keep track of your income, expenses, and cash flow. You pay corporate income tax, payroll tax etc.

In my case, my driver's company pays my company for co-driving services, based upon a set per-event rate. My company then takes that income and pays for rally-related expenses (watches, leadholders, erasers, ATCcalc, fireproof underpants, co-driver boots, etc.) and pays me a salary.

 

[REDrum]

Fair enough...you have a business and you operate the rally as a portion of it. That makes sense. I'm saying let's say I did find someone willing to kick in a true sponsorship. I know it's a pipe dream, but how would it be handled?

Fair enough, I was ranting. Again, FWIW...

Contract: Get an agreement (contract) in writing with your sponsor. Insure it clearly states what the sponsor is getting for his money and what he is not; right down to the font size and type on your car, canopy, shirts, website... Assuming its for a year, insure number and type of events you will be attending are clearly stipulated, and what happens if there is a change in # or type of events (non motorsport and publicity). In short, have full alignment on both your expectations. While hand shakes are nice going into a deal, a contract in writing is a required tool when the business goals/agreement no longer work or go south. Be carefull how much you extend youself based on sponsorship, more than once teams have found themselves thousands of miles from home with suddenly no sponsorship.

Money/Risk: Create a separate rally bank account from your personal. Get team insurance and understand what it covers and what it doesn't. Insure your sponsor knows what is covered in your insurance and what risks he may or may not be exposed to by sponsoring you. At the club level (<50K/yr level) I'm not a big proponent of sub chapter S (SCS) or LLC incorporations, you are pretty much going to loose money (so no worries of self employment tax), and good insurance will protect you more than then a corporate veil , with less paperwork... Having run a half dozen companies, I have learned to hate all the required paperwork/filings w/ SCS. (albeit I'm about to kick another off for tax reasons...) But, Christian or an attorney may have compelling opinion counter to that which you may want to consider. Also, by fed tax law, a sponsor is suppose to issue you a 1099 at years end for all money provided, which will increase your tax exposure. There may be creative was a sponsor can help you out w/o having to go down that road. (i.e like pay your event entry fee and/or hotel cost)

Good post to start, could develop into a great sticky

 

[Phlyan Pan]

Fair enough, I was ranting. Again, FWIW...

It's not a problem. I didn't take it as a bad response to the question, just pointing out that your situation (having a business already) was probably a bit unique and didn't really apply to the situation I'm describing. Thanks for the follow up, I really appreciate the input.

 

[mavric]

This may be helpful to you link. We are working on changing my photography company to a "Event based advertising, marketing, and photography" company. This way any money given by sponsors is considered profit, and profit from photography goes to prove that is a business and help pass the 3-5 test. All money spent on the build of the car is a startup expense, then you can pick and chose what you deduct to make it profitable. You will have to pay tax, but your first 2 years of start up can be huge deductions, then its easier to prove its a vaible business after the initial investment. After the first big invetment of building a car, it becomes easier year after year to actually use it for business purposes. Hope this all makes sense...I worked as a consultant and some of my coworkers were tax consultants for big firms back east. I am currently workign with them to get our setup all kosher.

http://www.nolo.com/legal-encyclopedia/article-30000.html

 

[CJPUTZIER]

My rally cars have been on my Dealer inventory. So is all a right off with the car I am going to sell it sometime when soneone has the right money but it cost money to up keep a fine car like the ones I have had.{LOL}Then the bodyshop does it as a ad for the shop.Did I till u I own the bodyshop too. trk and trailer belong to the shops too. I own the shop and do what I want with my stuff but it is all for sale, but is the # right to sell. Got to love America. My bookeeper is the best just ask him.

 

[Chris Taylor]

In addition to what's already been posted (good info) you may also find that you're better off organizing it as a marketing firm/company.

Also at least in Texas, and I'd assume others, real estate businesses are "allowed" to lose money year after year without risk of auditing. For quite some time our family business(es) have been based off of some sort of real estate deal... of course we also usually DO have some real estate dealings and property purchases/sales to back it up. BUT, depending on your situation, if you can buy a decent sized warehouse property to house the rally team and rent out other units/sections -- you're in business. Makes it a lot easier to write off all your racing/rally expenses and keep from dealing with an audit. Another bit of advice: slow down or take a year off so you turn a profit every ~3-4 years.

 

[SRTWRR]

9 posts about getting paid to rally... maybe thing$ are turning around

 

[Joe Average]

9 posts about getting paid to rally... maybe thing$ are turning around

I wouldn't call it getting paid to rally. More like not taking money out of the family budget, and your children's mouths, and Christmas to rally.(That sucked, I know but have seen it done.)
When I was roadracing the money I made as a driving instructor and race prep went into a company that sponsored my racecar. I always showed a profit of a few hundred dollars every year to make things legit with the IRS.
Get a good accountant who knows motorsport,like the Tabors, or sports marketing/management. It's money well spent.

Sean Gallagher