Scrappy Jack

iTrader: (2)

A) Do you have a business entity (e.g. LLC) set up?

B) Talk to a CPA, not a bunch of goons on a Miata forum.

Efini~FC3S

iTrader: (4)

A) No, but I was under the impression I could do it as self employment without the LLC

B) The goons on this miata forum are full of excellent information.

Luckily, I'm not an idiot and I set aside ~30% of my contingency winnings for paying taxes on them, if I can't get around it...

FRT_Fun

iTrader: (19)

How much bro?

Joe Perez

iTrader: (8)

You could try, but under an audit, you'd need to prove that you are substantially committed to the business of auto racing as a source of income. They're not stupid.

My guess would be that the IRS would treat this the same way as someone who tries to deduct the cost of lottery tickets, claiming that they are engaged in the business of trying to win the lottery.

The closest thing I can imagine to this is that you are permitted to deduct gambling losses up to an amount equal to gambling income, however that's quite a stretch. I can't find an actual definition of the word "gambling" from the IRS, however every example which they list seems to involve a wager. There is no wagering process in auto racing.

The IRS would more likely regard auto racing at the level most of us engage in to be a "hobby", and expenses related to hobbies are specifically designated as non-deductible.

Efini~FC3S

iTrader: (4)

There are other guys that I work and race with that are in the same situation as I. My understanding from them is that there are different ways to do it. I certainly don't plan on claiming buisness income of $2000 and business expenditures of $6000, and trying to claim a business loss of 4 grand. That is a sure fire way of getting audited. What I hope to do is claim $2000 of business income and ~$1600 of business expenses (I have receipts for much more than that) so that my tax burden is more appropriate.

Yes, I should probably talk to a CPA. Or at least, talk to the other guys I work with to get more details on how best to do it.

Faeflora

iTrader: (2)

Just do it as a sole proprietership.

As a business, other than the money hemorrhaging from your pocket, here's NOTHING wrong with taking a big fat loss. It costs money to make money and many businesses operate at a loss for years before becoming profitable. In the meantime, you can deduct away and have a valid tax shelter.

IF you are serious about racing, and seriously intend to be winning more money, then perhaps you can turn your racing hobby into a defacto "business". You would need to track your income and expenses. You could even turn your car into a business asset and deduct your parts and depreciate the car.

I have been audited by the IRS before for my small business and it is not a horrible thing. If your goal is to make money then have at it. Congrats on making some money racing.

Faeflora

iTrader: (2)

Here's an example:

http://taxdood.com/2011/07/15/cheque...g-for-the-irs/

Treat it like you're pro and maybe you've got a case for your deductions.

blaen99

iTrader: (6)

Actually, he can claim a loss equal to his racing income according to that case Fae. Just not in excess.

redfred18t

iTrader: (1)

My federal return is one tax form away from getting filed (just need a 1099-INT) and it's about a $3k refund. My state returns should get me another $1400 or so, mostly because my company jacked up my CT witholding when they changed their income tax a few months (increased income tax in september, retroactive for the whole year means a shitty paycheck for 3 months). I should use it to pay off student loans, but I'm going to pocket it and use it as house modding money when I finally buy one lol.

Scrappy Jack

iTrader: (2)

The IRS has sent more letters of inquiry in the past two years than we have seen before. Some are practically just "fishing," but they are more proactive then in the past.

Because some guys at the track may or may not have gotten away with something does not mean they know why or why not.

Joe put up a lot of good info on the topic regarding "business" vs "hobby."


It may make sense to establish a business entity for the racing, but getting audited and potentially paying fines because you are too cheap to spring for a CPA is being penny wise and pound foolish in my opinion (which is worth exactly what you paid for it).

rmcelwee

iTrader: (1)

When I was hauled in for an audit years ago they seemed pretty damn stupid to me.

FWIW, if you guys ever do go in for an audit be ready to answer some pretty strange questions. Where do you get your hair cut?, How old is that watch?, Do you go to the movies?, etc. Brutal, but stupid...

Vashthestampede

iTrader: (17)

How the ---- is that any of the IRS's business?

Faeflora

iTrader: (2)

Mine weren't like that. Then again you're in south carolina and I'm in DC.

Burn.


Paying for a CPA does NOT guarantee that you will not be audited.

curly

iTrader: (25)

I think I'll be disappointed after last year, when I was unemployed for three months but didn't file for unemployment, and still paid some student loan interest.

Which is why I don't get why this economy sucks. I quit my job, got training to start in a completely new field (machining->nursing), interviewed, hired, and started working all within a little over three months.

Bad economy?

ScottFW

iTrader: (4)

Don't sell yourself short bro. That IRS auditor thought you looked good and was trying to ask you out on a date!

You don't have to answer questions outside the scope of the audit. Your notice should identify a specific tax year and the items in question. Auditors are aware they are not well liked so they may try to be friendly to defuse some of the animosity. If it goes beyond idle chit-chat and you feel the questions are overly personal, or of a "fishing expedition" nature, you can politely decline to answer them. If you're an a$$h0|e and the auditor thinks you're being defensive and trying to hide something, they may expand the scope of the audit.

Efini~FC3S

iTrader: (4)

This is my goal, to break even on the racing stuff.

I'm not trying to use racing as a tax shelter. I just don't think I should have to pay income taxes on $2000 when I personally shelled out $6000 for entry fees, hotel, race gas, tow gas etc. etc. for those same events. That doesn't even include the cost of the tow vehicle or race car, since I don't own them.

My understanding is that at least two of the guys I work with have set up LLCs and have "real" businesses outside of just contingency winnings. One guy sells go-pros and traqmates (though not very many...) and the other guy does data analysis, coaching, sells DL1s, and can get parts, etc. etc. Both of these guys end up even or with a small profit, but are essentially using the LLC to offset any contingency winnings.

I know of one other guy who has done it as a sole proprietership, and I don't believe he does anything outside of what I was thinking of doing. That is, the only income of his business is contingencies and he claimed his racing expenses as business expenses. As long as he wasn't claiming some huge loss there was never any issue with the IRS.

Anyway, thanks for the replies and advice.

neogenesis2004

iTrader: (12)

I will be paying a lot to the tax man. Luckily no penalty since I had no tax liability last year at all, IE got a refund. I will have to start doing estimated payments though this year. The good news is that I will be getting about a $5k refund from VA after claiming FEIE on my taxable income.

FRT_Fun

iTrader: (19)

Just finished my taxes. w00t. Must resist urge to buy turbo goodies.

shuiend

iTrader: (24)

I have had mine done since about January 2nd based on our online W2's. I am just waiting for my real paper one to come in to make sure it is all correct before I submit it.

FRT_Fun

iTrader: (19)

My w2 showed up today so I knocked it out. Got more than expected. Win.