Local racing using an llc

Using someone else's llc would be even better...

What's a IIc?

limited liability company

Shouldn't be any more of an issue than using an LLC for any other business where you want to limit your personal liability. Although, typically an LLC is more than one person or it is a sole proprietorship. Make sure you have a solid operating agreement, which you will want to have written by a lawyer, to keep the "corporate veil" intact should you get sued. Also, do not, and I repeat, do not mix personal funds/expenses and business expenses. That removes the seperation of personal/business you are trying to establish by creating an LLC.

If you do an LLC with one member it's fine, they'll just tax you similarly to the way a sole proprietorship is taxed

Just creating an LLC isn't going to do squat to pay for racing. You didn't post what the LLC was going to be doing to make money to help pay for racing.

If you want to create the LLC to pay for your friends racing....kinda pointless.

Are you going to be able to prove to the IRS that your LLC is able to turn a profit?

If you cannot, you can only deduct expenses up to the amount of income you've made, which I'm guessing won't be very much for your "team".

I have been paying for my racing and one other guy through my LLC for the last 7-8 years. I use the expence as an advertising write off. My accountant asked that I put the company logo on the bikes and that one or both of us pass out a few flyers, and take a few pictures of us "selling" at the track. (you know, a pic of us standing around at the riders meeting. )

You can do anything you want to do as far as taxes go. Anyone can. But if/when the IRS comes knocking, you'd better be able to explain yourself.

"Joe's Plumbing" spending thousands of dollars on "advertising" on a guy battling for 4th in the C40+ class at Chicken Licks Raceway isn't going to fly.

This.....

LLC ~Thanks, see how important that "shift" key is.

The IRS has rules about what sort of expenses can be deducted from a business, regardless of whether its an LLC or some other form. Talk to a decent tax accountant.

We used to run all of our racing expenses through an LLC, it only had to show a "profit" once every 3 years and contingency money always worked for a "profit"

It was a great way to write off ALL of our racing expenses.

You best ask a CGA or someone with very good knowledge of what the IRS will allow.

I've written off my racing in the past through a separate company, but I don't believe you're allowed to sponsor yourself.

My girlfriend did it for her son and it worked great, it was usually a loss and she wrote a majority of it off !

S

really ? you're gonna be that nit picky ? I knew what it was as soon and I saw it regardless of caps or not.

S

Using profits from an LLC to subsidize your racing efforts and thus get a tax "advantage" is one thing, expecting the LLC to limit your liability if you were to hurt someone racing is another. Most commercial insurance policies exclude "hazardous activites" such as racing, parachuting, etc.

I'd compare the liability protection and expense differences between an LLC and S or C Corp.

An LLC, S, and C Corp all have Limited Liability concerning personal assets, and an LLC is generally taxed lower.

However, an LLC can be taxed like either a corporation or a proprietorship.

If the LLC is a single member LLC (SMLLC), then it is generally taxed as a proprietorship. But if you;d like you can file some form to have the company treated like a corporation.

Actually, I think an S corp is taxed like a proprietorship also...can't remember since it's been over a year when i researched this..

In Cali...an LLC can start to cost ya a bit of bullshit/$ as the Revenue stream get's goin'...

We're headin' to NV to form a Parent Corp/Trust...hell...If I get smart/pull my head out...I'll move the whole damn thing there!

Carson City?

As an object lesson for other riders, parents, sponsors or potential team owers, MXA presents an abridged legal document from www.leagle.com as warning about how to run a race team and how not to—this is largely a “how not to” example.

The basic rule of writing off an activity from your taxes as a business is the possibility of making a profit—this case shows how serious the IRS is about prosecuting and fining people who don’t fully understand the requirements of writing off a race team. The people involved here tried to write off $57,0000 in motocross costs as business expenses.

CASE: PAQUIN VERSUS THE IRS (INTERNAL REVENUE SERVICE)

CASE NUMBER: No. 25886-08S.

COURT: United States Tax Court.

PETITIONERS: Michael Paquin and Kathy Thomas-Paquin, pro se.

This case was heard pursuant to the provisions of section 7463 of the Internal Revenue Code... on issues for decision are: (1) Whether petitioners' motocross racing activity was an "activity not engaged in for profit" in 2005 and 2006 within the meaning of section 183, and (2) whether petitioners are liable for the section 6662 (a) accuracy-related penalties for 2005 and 2006.

BACKGROUND

Mr. Paquin is an avid fan of motocross motorcycle racing. In 2004 Mr. Paquin became interested in starting a motocross racing business, and he discussed the idea with Mrs. Thomas-Paquin. Although neither petitioner had any experience in motocross racing or the business of motocross racing, petitioners agreed to give the idea a try. Petitioners did not intend to personally compete in motocross races, but instead planned to sponsor other riders—including Mr. Paquin's son, MP. Petitioners' decision to sponsor MP was not based on MP's skill at motocross racing or even his interest in the sport. Indeed, MP initially was reluctant to compete.

Mr. Paquin also identified more experienced riders, who were unrelated to petitioners, and invited them to join his racing team. Mr. Paquin did not hold formal tryouts or auditions. Instead, he approached riders who performed well at motocross events he attended and who had, in his words, "the right attitude".

In addition to MP, petitioners sponsored two riders in 2005 and 2006: Tony Merrell and Dee Wade, both of whom were 20 years old in 2005. Petitioners briefly sponsored a third rider, but stopped sponsoring him when they concluded he did not have the skill or dedication to succeed at motocross.

Petitioners made the following oral agreement with each of the unrelated riders they sponsored: Petitioners would pay the riders' race entry fees, maintain their motorcycles, and transport them to and from motocross events in exchange for 75 percent of the riders' winnings at the amateur level. Mr. Paquin told the riders that he expected to recover his investment in them if and when the riders became professionals, but petitioners did not reach an agreement with any of the riders concerning petitioners' share of the riders' earnings as professionals.

Motocross races are conducted at the amateur and professional levels. All riders must begin as amateurs and may improve their amateur classification by competing and excelling in motocross races. To compete at the professional level, a rider must be at least 16 years old, must have attained the highest amateur class, and must have accumulated a certain number of additional "points" on the basis of the rider's performance in motocross events.

Amateur riders may earn trophies and gift certificates, some of which are redeemable for cash, but amateur riders are generally ineligible for cash awards. To be eligible for cash prizes a rider generally must compete at the professional level.

It is virtually impossible for an amateur rider to make a profit at motocross—indeed, petitioners admit that even if their riders had won every race they entered in 2005 and 2006, petitioners still would have lost money on the activity. A professional rider, however, can earn a profit through a combination of cash prizes and corporate sponsorships. All of the riders on petitioners' team were amateurs in 2005 and 2006, and no rider was close to achieving professional status.

Petitioners observed few business formalities in the motocross racing activity. Petitioners did not prepare a written business plan, did not create a separate entity for the activity, did not investigate whether they needed a business license, and did not open a separate checking account (petitioners paid motocross racing expenses from their personal accounts). Petitioners maintained some records of their motocross-related activities and expenses, but the records are incomplete. For example, petitioners deducted $715 for race entry fees in 2006, but Mr. Paquin testified that the actual entry fees were much greater than $715. Petitioners also failed to keep track of how much money they spent on gas to drive to and from motocross races in 2006.

As of the date of trial petitioners continued to sponsor MP's motocross racing activities but were no longer sponsoring any other riders. Petitioners stopped sponsoring Mr. Merrell and Mr. Wade in 2008 because the riders apparently lost interest in motocross racing. None of petitioners' riders, including MP, had achieved professional status as of the date of trial.

On July 24, 2008, respondent issued a notice of deficiency that treated petitioners' income from the motocross racing activity in 2005 and 2006 as other income, disallowed the net operating losses claimed with respect to the motocross racing activity, and imposed an accuracy-related penalty under section 6662(a).

Petitioners reported net losses from the motocross racing activity of $33,052 and $24,934 in 2005 and 2006, respectively, and have never earned a profit from the activity. Petitioners suggest, however, that the activity was still in its startup phase during the years at issue and imply that the limited history of losses should not count against them.

Petitioners presented no evidence regarding the customary startup period in the motocross racing industry. Moreover, petitioners continued to sponsor Mr. Merrell and Mr. Wade until 2008 (when Mr. Merrell and Mr. Wade stopped racing for personal reasons) and continued to sponsor MP as of the trial date. Petitioners' continued investment in the motocross racing activity despite substantial losses suggests the activity was not carried on for profit.

COURT CONCLUSION

On the basis of the foregoing, the court concludes that petitioners' motocross racing activity was an activity not engaged in for profit in 2005 and 2006...and that petitioners were not entitled to deduct expenses associated with the activity. We further conclude that petitioners are liable for...accuracy-related penalties. We have considered the parties' remaining arguments and, to the extent not discussed above, conclude those arguments are irrelevant, moot, or without merit.

If you wanna sponsor next years State Champion....let me know....

Also whats your buddys name?

Have your accountant call my accountant

Just make sure you do it right. Some here saying they did it aren't necessarily doing something legal. It won't fly if you make $5,000 and claim to spend $10,000 in advertising. It won't appear legitimate even if you make $10,000 and spend $10,000. Not many businesses spend all of their revenue on advertising, and they'd probably wonder why you couldn't just buy an ad or setup a booth at the race (as opposed to racing). At that point it looks like someone that just wants to race tax free. Most do this as a way of funding a hobby from tax free income, and the IRS can kinda figure out if that is the case or not.

Yes it is.....a friend of mine created a company of his own that allowed him to write off all riding/racing expenses....it worked out great for him, im goping to contact him and get the details.

My gf (who also races, or raced) is a CPA with her master in Tax and has been doing taxes for 11 years. We have been watching this post for a few days to see what everyone had to say. This is from her:

SPYGUY hit it on the head with this quote "You can do anything you want to do as far as taxes go. Anyone can. But if/when the IRS comes knocking, you'd better be able to explain yourself"

The IRS in their audit guidelines lists motoRcross (I think it's the same as motocross) as a potential section 183 activity, which are hobbies and not businesses.

For complete rules please message me and will answer them for $150 an hour (and that's cheap) JK JK. In my opinion the rules are messed up, any award is considered income (some exceptions). The issue with amateurs is contingency, they have to pick up the income (even a 5 year old) but are unable to offset the income because they do not itemize.

Just because you have an LLC doesn't mean you are free of hobby loss rules. There are ways to make advertising work, but if the child is related to you, you have less of a chance of winning on audit.

If you have a CPA that lets you do this without a business plans and a few other key elements, more power to them. We as CPAs are subject to very very strict guidelines now and we can be penalized the same as the taxpayer.

Maybe i should contact DC and see if Racer X wants an article on this topic.