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The only motocross racers who can legally claim expenses related to their racing activities are professionals who are earning a 1099 income.
Any attempt at “sponsoring” your own child’s amateur racing interests and trying to write that off as a business expense is about as foolish as it gets.
It would be as foolish as trying to claim your family vacation as a business expense because you talked about business for five minutes on the trip.
The IRS, and tax code, are not this stupid.
Anyone got any awesome stories about people getting audited or otherwise overhauled by the IRS ?
As a regular dude I find all the tax terminology super confusing . I think I’ll start by getting a book from the library .
One important concept though ,
It’s my money , I earned it - and if I don’t claim any legitimate write offs - then that’s my fault .
So it’s up to me to educate myself.
Why go to all this trouble, when you can just become Sovereign Citizens?
The biggest thing I've seen over the years, well 10-15 years ago they were really coming after guys hard who were calling workers independent contractors instead of employees. If the worker has certain characteristics, you're really supposed to claim him as your employee and not let him use his own company and give him a 1099. I knew a guy who called his crews 1099 independent contractors and he was audited and tormented year over year for like 10 years straight (some type of record). But every year he took it tax court, had the documents, and he won. They would just audit him again.
Anyway I really shouldn't hold myself out as a tax professional. I've passed exams in REG and some other classes in taxes, but I mostly make budgets these days. But I've sort of had enough with these people. When you look at what they're spending the money on, the waste and abuse, then letting corporations and big guys pay virtually nothing, nickel and diming us for $1k or whatever. That's why I say file on your own and try and get away with whatever you can. If you do something wrong or make a mistake they'll just change it and correct it for you, unless you do fraud. Don't do fraud.
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Google “hobby loss rules” and you will find your answer
..and a plan to make money, not just spend it.
When I was car racing it was under an LLC for a bit, until the accountant shut it down. He said it was a horrible idea even though damn near everyone was doing it and I never heard of anyone getting audited.
My brother in Christ… You don’t have any legitimate write offs with your racing hobby. Simply creating an LLC does not magically grant you tax deductions.
Best thing i took from this thread that somebody posted………
- Pigs get fat, hogs get slaughtered
But he’s going to get a book from the library - because this tax terminology is very confusing. It’s almost as though it takes some education and experience to know what you’re talking about. Who knew?
Do your own research, there are plenty of opportunities out there for tax deductions and businesses.
You can write off "hobby expenses" to the extent of "hobby income". Kind of like gambling winnings, operating a hobby farm etc...it allows you to make money, do things you enjoy, buy the things you want (to the extent they apply to the hobby), and not get gigged for the income. But you can't declare it as a loss to your W2 income or taxable income. But, if you think you can just figure a way of writing off MX costs so your kid can race and you pay less taxes, you're playing with fire buddy. That's tax evasion and the IRS takes a very dim view of this.
You dont think Monster and Rockstar that are sponsoring the riders aren’t writing it off?
All it takes is a business and Its advertising for the business.
Talk to a Tax Accountant about it.
Yeah, just open a business and write it off...lol. You'd a have to be a fkng idiot to listen to this garbage That business better be an established going concern with verifiable income and not some fly by night BS LLC used as a tax shelter to w/o the cost of hobbies and play toys against other taxable income. Rockstar and Monster are a completely different realm of business structure and useful verifiable advertising.
There's a lot of confusion in this thread. Jeremy Macduff say "the only motocross racers". Monster and Rockstar are not motocross racers. Monster and Rockstar are businesses that sell energy drinks, and they sponsor motocross racing as a way of advertising to sell more energy drinks. They already have a business - and profitable one at that. They can deduct the advertising costs from their profits.
Lumpy, you have a business. You (by you I mean your business) can sponsor riders - in fact, given that your business is directly related to motocross, it would make a lot of sense to do so and deduct the expense as advertising. You can deduct the sponsorship from your business income as advertising expenses. But a business does not have to be directly related to motocross to sponsor a rider and deduct the expenses. But it does have to be an actual business.
For most of us, motocross racing is not a business, it is a hobby. If that's all it is - we don't do it professionally - there is no rational or legal justification to claim any expenses related to it against whatever income we earn to make a living. Incorporating does not magically change that. Our hobbies are funded by our after tax money.
It is different if you do, in fact, make money racing as a professional. But that's not what seems to be talked about here. Even then, if you are typically spending more than you're making and creating losses, here in Canada you'd be unlikely to be able to claim those losses against any other income if you have no reasonable expectation of profit (though in the occasions where you do make money you're expected to report it and be taxed on it). I expect the IRS has similar rules (I have seen hobby loss rules mentioned in this thread). Furthermore, if you're creating a "business" for the purpose of avoiding tax, what you're doing is risky and no sensible accountant would want anything to do with it.
Much of what is in this thread is utter nonsense - with the odd exception (alina6 seems especially competent and sensible).
I work for a big 4 accounting firm in private client services so while I am largely ignorant of American tax law, I have a good handle on general tax and accounting principles. The vast majority of respondents in this thread do not.
Former big 4 here, US tax only, no international. You're pretty much spot on. Laws may differ across countries but the drive to lower taxes is universal so I suspect the limitations we have in US tax law have parallels in yours.
Pit Row
My wife is a partner in a large tax firm and she's addressed this here before.
MPJC is spot on.
And not all sponsorships you pay to your kid will necessarily be deductible in an audit. You would need to prove that the sponsorship expenses are “ordinary and necessary.”
Supposedly some lawyer was spending $50k/year to sponsor his own auto racing hobby. The IRS challenged his claim, and the lawyer lost. https://lumsdencpa.com/blog/view/deduction-of-ordinary-advertising-and-…
The Tax Cuts and Jobs Act 2017 helped all pass through entities with deductions that most people associate with LLC. The real reason to do an LLC is for liability purposes especially now that the tax benefit isn’t an advantage. Always consult a CPA and know when you get audited their hourly fee will be more defending you than your tax savings.
Only way you could hook this in is if you had land and bought equipment for a private track. Probably couldn't write off everything (such as motorcycles) but it's an angle to get something back. Assuming you have land and desire.
All a “Sponsorship” is, would be hiring someone to “work for you” and promote your business?
Say the business writes “Steve” a check to put their name and face on the side of his bike, plus do 10 YouTube videos year and put their logo at the front. At the end of the year the business sends him a 1099. They tell the government that they paid Steve $10k. That is now deductible from the gross income along with the other normal business expenses. They never tell the government what work each independent contractor did for me(maybe if there’s an audit). But it’s pretty simple.
Say the company brings in gross off $100,000 for the year. They would be paying $30k in taxes (at estimated 30%)
But since there are business expenses …
$10k for Steve to advertise
$5k for office space (maybe it’s a garage/shop)
$5k on travel expenses to/from jobs
Now the business is taxed on $80,000 = $24k in taxes(at estimated 30%)
The business spent $20k in expenses to get new jobs and finish jobs + spends $24k in taxes. Total $42k, they are left with $56k in the bank
Vs no write offs and just pay taxes they spend $30k and are left with $60k in the bank. But they don’t have any ads, shop or traveling done.
Pretty sure this is what Bisceglia’s dad did years ago. He sold gas caps and vent hoses i think
Sold $145 of vent hoses, had $50,000 of "marketing expenses". Way in the red, no taxes owed.
That's the general concept, right? 😁
Wont speculate on how the books looked. I imagine it was to help offset the expenses directly as well as taxes/expenses.
Pipe + Internet = desertratlife
I'll echo the statments of others reguarding speaking to many accountants. Find the right one, and take your time. A good accountant will protect you and won't file anything shady. You dont want the IRS poking around with a magnifying glass. Even if you are 100% honest, you just don't want that headache in your life.
I don't have a moto company, but transitioning my business from sole proprietorship to an S Corp made a big difference in my tax liability. It all depends on the situation. Just take your accountants advice.
Never, NEVER use H&R Block or Turbo Tax/self file for any reason. If you do, you are likely donating some of your hard earned money to the government. Filing your own taxes without proper education is essentially like rebuilding your bottom end in your backyard without the proper tools. Just don't do it.
Observing several naysayers here that state they have worked for large accounting firms:
Isn't that similar to getting culinary advice from McDonalds?
The large firm would want their employees to take the most conventional path with the least amount of risk to the firm.
Wouldn't you want to work with an accountant that is focused on maximizing the benefit to the client?
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