Business Side of Racing

[gkent]

not worth messing with.

Exactly. Especially when you only plan to win a couple hundred bucks.

All this talk of CPA's is bullshit and just a added expense for any small business. Basically just keep good records of revenue and expenses with the expenses broken down into the categories the tax forms want. EXCEL is the only tool you need and its not rocket science. And don't concern yourself with all the accounting bullshit like "balance sheets", "income statements", etc. It all boils down to: how much did you make MINUS how much did you spend. The net is either taxable profit or a non-refundable loss.

 

[66Satellite47]

Well, I was lucky since my wife was a CPA and stayed up to date on the IRS rules. She also did taxes for customers for many years. I had a specific "racing enterprises" checking account, a business license and the records to back it up. We did report the winnings and losses on the annual tax reports. It's not easy but can be done. I don't recall how much it really helped us, but I did that for nearly 10 years. My wife was very good accountant and my spreadsheets were good.

 

[slepr1]

You go out and buy a new rear end - $5000
You go to one race and expenses total 2000
A sponsor gives you 1000
Owner equity is 6000
You file taxes for loss of $6000
The government cuts you a cheque for ... $ 0

It took a fair bit to make her understand that the "expense" just reduces "revenue". If there is no "revenue", you eat the expense.

What kind of bs is this? That's not how tax law works here in Canada (and maybe the US too)! Your expenses reduce your taxable income that you report from all income sources (in a sole-proprietor business, not incorporated). So in my case when I did this, I had other income from my full time job and paid income taxes. I added up my income from my 'car business' and minus my expenses. I used that number and it either raised my taxable income or lowered it. I do the exact same thing now with my rental properties. That's how it works period.

 

[slepr1]

I'm not dumb enough to think I'll make money, but If I shell our for big ticket items, it would be nice to get some tax relief.

Yes.

Yeah, see this is what I don't understand.

Here in Canada anyone can have a "sole proprietor" business (no paperwork needed) which is required if you make income on anything that is ongoing. Example...if you sold car parts for $100 you don't have to report it. But if you sell car parts for years and create ongoing income, you suppose to report it. Even drug dealers, prostitutes are by law suppose to declare their income. Only lottery winning are exempt because its taxed at source. Income from making YouTube videos is even taxed.
So...you deduct your expenses & costs from that income and you pay taxes on that. Its so simple even your local H&R Block can do it for you.

I'm not expecting to win more than a couple hundred bucks, so not worth messing with.

If you pay income taxes from any income source then its totally worth it. Many businesses don't make a profit and will eventually close shop. The government knows this and expects it. That's why they allow you to lose money for # of years. But IF you make money they want some.

 

[gkent]

I added up my income from my 'car business' and minus my expenses.

You're mistaken. "Income" and "revenue" are two totally different things. "revenue" minus "expenses" equals "profit" which in the case "sole proprietorship" as we're talking about is "income". In the case of "sole proprietorship" this income is added to your "income" from your fulltime job and you pay tax on the total of the two.

You buy a car for $1000 - that's an expense
You put $200 of parts into it - that's and expense
You sell it for $5000 - that's REVENUE
$5000 REVENUE - $1200. expenses = $3800 profit (INCOME)

 

[Cranky]

The IRS will only allow you to claim losses on your business for three out of five tax years. If you don't show that your business is starting to make a profit, then the IRS can prohibit you from claiming your business losses on your taxes......and this is what my CPA told me some years back when I was considering running a small machine shop out of my 1500 sq ft garage. There's really no such thing as a 'hobby business' but the IRS will consider your business as a hobby if you don't show profit along the way and not allow you to keep on saying/claiming you have a business......

 

[Fran Blacker]

The IRS will only allow you to claim losses on your business for three out of five tax years. If you don't show that your business is starting to make a profit, then the IRS can prohibit you from claiming your business losses on your taxes......and this is what my CPA told me some years back when I was considering running a small machine shop out of my 1500 sq ft garage. There's really no such thing as a 'hobby business' but the IRS will consider your business as a hobby if you don't show profit along the way and not allow you to keep on saying/claiming you have a business......

That why I put in "I think" thanks now I known if my memory works?

 

[66Satellite47]

The IRS will only allow you to claim losses on your business for three out of five tax years. If you don't show that your business is starting to make a profit, then the IRS can prohibit you from claiming your business losses on your taxes......and this is what my CPA told me some years back when I was considering running a small machine shop out of my 1500 sq ft garage. There's really no such thing as a 'hobby business' but the IRS will consider your business as a hobby if you don't show profit along the way and not allow you to keep on saying/claiming you have a business......

Not to disagree, but I know I declared losses for more than three years. But keep in mind the IRS changes the rules every year, so what was true in the late '70's & early '80's could have changed. My wife was VERY careful about the rules since her Professional License depended on it.

 

[padam]

I have listened to Luke Bogaki's podcast. It seems like you have to pay up to get the good stuff. I'm not against doing that if it's worth it, but I know that many so-called "success" programs keep holding out the best info until you level up again and again.
Does anyone know anything about his paid program?

 

[66Satellite47]

What???

 

[padam]

I have done it as a hobby business.
As an official business, LLC or Corporation, will require different insurance and for you to follow strict DOT regulations while towing and traveling. I am not very familiar with that part of it.

Use expenses to offset winnings.

Most tracks will send you a 1099 reporting what they paid you that racing season.

My advise is to hire a top notch CPA.

CPA can advise you on equipment depreciation and what are valid deductions.
Keep all receipts and pay entry fees with a check for proof of entry.

A potential sponsor may chose to use part of his advertising budget for sponsorship. In return the sponsor will be
looking for a target audience to get the most bang for his buck.

Join and or attend drag racing classes by Luke Bogaki or Scotty Richardson. They race for a living. They know
first hand the ins and outs of it. They both offer online sessions also.

Things that you don't want to do -
File a return a tax return with big expenses and no income.
I have seen guys try to make a huge claim of their equipment and expenses the first year. Then get a huge refund and
be audited by the IRS.

Stay below the IRS radar. If you win some money, claim enough expenses to cover the amount won and what it cost to attend
races.

IRS is not going to fund your racing season. If they would then everyone would have a race car.

Remember 2 things -

1. Bracket racing is a very tough sport.

2. In drag racing to become a millionaire you will have to start with 2 million.

What???

Reference above.

 

[66Satellite47]

OK, I guess I agree with Hudson. The declared expenses can't be too high, claim the winnings and document all the expenses. Be sure you have a CPA that knows the ****.
Bracket racing is a very tough sport. I know, did it for 20 years all around the upper midwest, against some of the best in the country.

 

[w.Hudson]

I have listened to Luke Bogaki's podcast. It seems like you have to pay up to get the good stuff. I'm not against doing that if it's worth it, but I know that many so-called "success" programs keep holding out the best info until you level up again and again.
Does anyone know anything about his paid program?

The only time that I have listened to Luke was at the track. He did a short lesson on site. It was very good.
I do belong to Scotty Richardson's online deal. I was lucky and got in before he started charging for a yearly membership.
I learned a lot and it will keep you up to date on some of the latest tricks and things to pay attention to. I recommend it.
Not to brag but shortly after joining Scotty's school I beat him at a big money race in Monroe, Louisiana. He had said if we were struggling to get in the back of the staging lanes for the next round and maybe catch another guy who is having problems.
Well, we both were having problems. Fortunately I was struggling less than he was. He said
" When you drove up on the side of me I knew that I was in trouble" I assured him that it was all
luck. I am not that good. Never will be.
And as far as people bashing "hobby business", that is the term that my CPA and his firm uses.
From race winnings, buying and selling horses, buying and selling heavy equipment, rental properties and my full time regular income, they have never steered me wrong.

 

[gkent]

And as far as people bashing "hobby business", that is the term that my CPA and his firm uses.

Well you can call it "screwing the pooch" if you like but the tax man calls it a "business".

 

[w.Hudson]

Well you can call it "screwing the pooch" if you like but the tax man calls it a "business".

I have never had a problem with anyone on here or on any other forms that I belong to.
But you sir are the reason why I am hesitant to ever write a reply.

I have used the same CPA for over 20 years. I have never had a business license for any venture except my rental properties which are a LLC.
I do not make it point to know tax laws well enough to quote but I hire the best that I can find. That is their job to know.

They make sure that I never get to meet the "tax man"

A gentleman asked a valid question, and I gave him my experience.
I am so sorry that it is different than your experience.

 

[padam]

I have never had a problem with anyone on here or on any other forms that I belong to.
But you sir are the reason why I am hesitant to ever write a reply.

I have used the same CPA for over 20 years. I have never had a business license for any venture except my rental properties which are a LLC.
I do not make it point to know tax laws well enough to quote but I hire the best that I can find. That is their job to know.

They make sure that I never get to meet the "tax man"

A gentleman asked a valid question, and I gave him my experience.
I am so sorry that it is different than your experience.

I am grateful that you did reply.
I am looking for ideas and advice form people with experience, and you gave me that.

 

[Cojohnso1]

I attempted this route some 5+ years ago. I even applied for a low interest loan from my bank as part of their Small Business Administration funding. I didn't need the money. I had that amount in their bank.. Just to get things moving with a new LLC. included a 2 year schedule and plan to campaign as Modified Stock in NHRA NW region. Bank came back saying "Too Risky." TOO RISKY? NO **** SHERLOCK! Lol.

My mistake was trying to start too big as a business. I would recommend start with oil, plugs and maybe even tire sponsorship to a manageable circuit schedule? At the time Valvoline and/or other oil vendors accepted oil sponsorship applications. Start small. Keep it local. And grow from there. Learning new opportunities as you go.

P.S. Drag racing is terrible for promoting grassroots efforts. NHRA is WAY too top heavy. Nascar's support to small local tracks and events like dirt track racing is far better for any small business attempt. (At least it was 5-10 years ago.) I'm not up to today's climate. I just run my garage builds local at my expense these days.

This of course is just my opinion and limited experience.