Forming a LLC for racing?

think you might want to talk to a CPA instead of soliciting advice from this motley crew?!??!?!?!

My opinion, that's a bigger hassle than it's worth. If the track said to show up and make balloon animals for children and they will pay you $500 if the kids have a good time, it would be the same situation. You could write off the milage, expanses and depreciation on a personal level. Also some States don't allow single person LLC. Not sure if Cali is one of them.

Just my .02.

Better off starting an S-Corp rather than an LLC.

Although I see you're in CA and single member LLC's are allowed. $800/year.

I'm not a CPA yet but I am currently taking the exam.

You can write off your mileage, bikes, parts etc etc with or without a LLC.

You don't need an LLC or S-corp to have a "business". All you need to do is call it a business and track and report all related income and expenses on a schedule C. If it is a legit business, it will be no problem. If it is not, it doesn't matter what initials you put after the company name (llc, corp etc). You will need to be prepared to prove you are doing it with the intent of realistically earning a profit, not just a recreational pursuit that just happens to earn a little money once in a while. For the van, legitimately track millage and expenses related to racing. If say 50% of the miles on the van come from racing, and 50% come from personal use, you can deduct the millage related to racing, 50% of the van value for depreciation, and 50% of any loan interest as a business expense. Just remember, those deductions can only be from income derived from racing, not any other income you may have. So if you have $20K in expenses and $10k in race winnings, you can only deduct $10k.

CarlinoJoeVideo wrote:

You can write off your mileage, bikes, parts etc etc with or without a LLC.

This^^

No point in spending the money to setup an LLC when you can track expenses and deduct them from your income as a sole proprietor. Do they give you a 1099? You should be able to deduct your mileage, hotels, and shop/garage. You will probably raise some red flags and get audited so be aware of that. It's pretty simple to calculate the cost of your garage. I do it for an in home office. If you do any book keeping, scheduling, reserving hotels in an office in the house then I'd say deduct some space for that as well. Cell phones, insurance, utilities, etc. Keep receipts for it all and be ready to justify it to the IRS.

You would do an LLC if you were wanting to remove liability and protect your existing assets. I don't see the advantage in terms of taxes. IRS doesn't look it at it as any different than sole proprietor.

Also, talking with us on here is a waste of time haha. None of us are truly qualified to answer these questions.

That said, please update us with what your CPA or attorney tells you. I'd be curious to hear their advice.

You may find this helpful.

https://turbotax.intuit.com/tax-tools/tax-tips/Small-Business-Taxes/When-the-IRS-Classifies-Your-Business-as-a-Hobby/INF22852.html

A lot of applicable info here:
https://www.forbes.com/sites/kellyphillipserb/2011/10/25/run-with-it-sports-races-and-taxes/#358eeeb544ba


"...you must report your winnings on your income taxes. The actual treatment of the winnings, though, hinges on whether you consider running a business or a hobby. If running – or any other sport – is your hobby, then you would report winnings as "other income" (good ol' line 21 on your federal form 1040). If that's the case, you can claim deductions - like entry fees, running shoes and other related expenses - against your winnings but only if you itemize. You would include your related running expenses as "miscellaneous itemized deductions" on your Schedule A. Those miscellaneous itemized deductions are limited to those in excess of 2% of your AGI (adjusted gross income).

Additionally, if you treat running as a hobby, your deductions are limited to the amount of your winnings. You also can’t carry excess deductions forwards or backwards. So, if you’re like me and you pay an entry fee to run but don’t win anything except for the odd finisher medal (my last one was carved out of wood into a whistle), you can’t properly claim any running-related deductions. But that’s okay – I’m only running because I like it. And for the shoes.

If, however, running is a business for you, you would report your winnings on a Schedule C. Similarly, you would claim your deductions on your Schedule C. In that event, your deductions wouldn't be limited to a % of your AGI and you can report deductions in excess of your income.

How can you tell if running is a hobby or a business for you? The IRS looks at a number of factors. First of all, the IRS assumes that you’re in business to make money. There’s nothing that says that you can’t enjoy your business, but if you’re running primarily because you like it and not to make money as your main motive, it’s likely a hobby. Additionally, the IRS assumes that a business will eventually make a profit. If you spend more than you make year after year, the IRS is going to lean hobby - especially if you've lost money for three of the past five years. For more on the hobby rules, see my prior post about hobby income tests and Mary Kay.

Lots to consider, right? Or, if you're like me, you just take your medal and run. No tax consequences for those of us in the middle of the pack."

There are also costs in winding an LLC up when it has run its course. No idea how much though.

Hmm, lots to consider here, but it seems like it's probably not worth it based on how little income I would actually be getting from it, and it's likely I would not be turning a profit most (or maybe every) year. If I decide to talk to a CPA about it and move ahead forward I will update this thread. Huge thank you to everyone who responded, very much appreciated! Like I said, I'm just getting into the whole tax deal (and the joys of discovering how much they like to grab from young single men), so my knowledge is limited.

JM485 wrote:

Hmm, lots to consider here, but it seems like it's probably not worth it based on how little income I would actually be getting from it, and it's likely I would not be turning a profit most (or maybe every) year. If I decide to talk to a CPA about it and move ahead forward I will update this thread. Huge thank you to everyone who responded, very much appreciated! Like I said, I'm just getting into the whole tax deal (and the joys of discovering how much they like to grab from young single men), so my knowledge is limited.

Talk to a CPA it will be worth it.

Just maybe not worth starting a LLC over, at least you may be able to use expenses to off set winnings and not pay any additional taxes.

+/-$2k/yr. Keep the government out of it. If you did more than race in the hill climbs, like sell shirts or other related items, then maybe it might be worth starting a LLC. Otherwise roll it into investment accounts.

whyZ wrote:

+/-$2k/yr. Keep the government out of it. If you did more than race in the hill climbs, like sell shirts or other related items, then maybe it might be worth starting a LLC. Otherwise roll it into investment accounts.

Ah, you know that's not a bad idea. I already have a Roth IRA set up, so that would be pretty easy. My main concern is I don't want to be paying taxes on money I spent more to get in the first place (gas, entries, parts, etc.), but if I did end up coming out in the black I could easily just roll that right in.

You do not need a LLC or SubS to report your income and deduct expenses. If you never show a profit you might be denied the deductions. Given what I know about it you will never make a profit if your income is $2000 and you are depreciating a van and motorcycle, deducting expenses for entries, repairs, and supplies. Eventually it will get audited and then the fun starts. Your tax return will start to cost a lot more with the business income/expense brought into the mix. Good luck with whatever you do. .