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Moto810
10/16/2016 6:02pm
10/16/2016 6:02pm
Edited Date/Time
10/16/2016 6:03pm
Any other business owners here sponsor riders? Question is how do you write off the bikes you provide for these riders? Depreciation or just direct deduction? If there is any team owner here or someone with this experience please share some details.
I doubt you would be able to recoup even 15% of your investment through deductions.
The Shop
In your case I'd just label it as a marketing expense and take it all off 2016. Full price you paid, graphics, ect that went towards this, "marketing item".
The difference between your situation and a race team is that for them the bike is a, "tool" or "nessicary item" to perform their job. So I believe it's just a different category but same result?
I believe there are a few options available and your overall tax strategy needs to be considered.
The asset does not qualify as a vehicle so, this opens up the possibility of using section 179. Careful consideration should be used in valuation of the asset. Some parts are routine maintenance items and some are considered upgrades and should be added to the cost of the asset, or depreciated as a separate asset. Again, depending on the details of that particular item.
The business should have a policy in place that determines their threshold in the case of capitalization versus expense items. This will be a determining factor in execution.
It sounds like the Planned life of the asset is short. This matters because when the asset is disposed, there maybe a recapture calculation necessary. The planned selling price of the asset could help to determine the overall strategy.
The key is to put together a plan using all variables and the overall tax strategy of the entity. Of course, nobody wants to pay more taxes than they have too!!
https://youtu.be/XEL65gywwHQ
Seems to me, if you are a license dealer, factory, or some kind of aftermarket company, like factory connection,
it would all be advertizing. Write it all off minus what you recoup when you sell off the old stuff at the end of the year.
The rest, the vans, tools, stuff that carries on from year to year, depreciate it.
Makes you kinda realize why crushing bikes at years end is a not so bad an idea.
Total write off, no hassle selling, no putting that value back in the mix.
The cost of the sponsorship to you is (1 - your marginal tax rate) x Amount spent. For example, if you're in the 35% bracket, spending $1K, would effectively cost $650.
ROI on the advertising is a different matter, and is hard to quantify (probably part of why large sponsors come and go so quickly in the sport...).
You see a lot of mx families 'sponsoring' with their own business not because it's effective advertising, but because turning a personal expense into a business deduction makes it much less expensive.
Pit Row
The good thing about us is we are not in the motocross business. We are in the tech biz so we fall into just advertising much like Monster Energy, Red Bull, Chevy, or any other non moto biz.
The threshhold is "Ordinary AND necessary business expense." You must meet both standards.
https://www.irs.gov/businesses/small-businesses-self-employed/deducting…
assuming you have a small business
From the IRS guidelines:
What Can I Deduct?
To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.
Now there can be issues between if you sponsor a private person or buy an advertising package from a team. That is what I am looking to know. If there is a team manager or owner here who can shed light on what they have learned over the years that would be great.
Not sure if a motocross team manager is the best person to get tax advice from.
Facts
The taxpayer operates a business.
The taxpayer intends to sponsor motor cycle racing in the belief that the exposure arising from the sponsorship will benefit his business in the form of advertising.
The taxpayer will provide sponsorship for up to four motor cycle riders. This will include paying the day to day costs such as fuel, repairs, spare parts and safety clothing only.
The motor cycles and a support vehicle as well as the clothing and caps worn by the riders will carry the taxpayer's business name.
In addition, the taxpayer intends to hand out business cards at the motor cycle events to stimulate interest in his business through his position as sponsor of the sporting event.
The taxpayer will not pay the costs of purchasing motor cycles.
Reasons for Decision
Section 8-1 of the ITAA 1997 allows a deduction for all losses or outgoings to the extent that they are incurred in gaining or producing assessable income or are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. However, no deduction is allowed to the extent that the losses or outgoings are of a capital, private or domestic nature or are necessarily incurred in gaining or producing exempt income.
Losses or outgoings are incurred in gaining or producing assessable income where they are 'incidental and relevant to that end' ( Ronpibon Tin NL and Tongkah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431; (1949) 4 AITR 236). Where a taxpayer is carrying on a business for the purpose of gaining or producing assessable income, the commercial and practical implications of the term 'necessarily incurred' imply that voluntary expenditure incurred for business needs may be deductible. It is the taxpayer who decides whether the expenditure 'is dictated by the business ends to which it is directed' ( Federal Commissioner of Taxation v. Snowden & Willson Pty Ltd (1958) 99 CLR 431; (1958) 11 ATD 463; (1958) 7 AITR 308 ( Snowden & Willson's Case )). This was further supported in Magna Alloys & Research Pty Ltd v. Federal Commissioner of Taxation (1980) ATC 4542; (1980) 11 ATR 276, when the Court stated:
For practical purposes and within the limits of reasonable human conduct, it is for the man who is carrying on the business to be the judge of what outgoings are necessarily incurred
In this case, the taxpayer intends to provide sponsorship in the belief that the exposure from that sponsorship will benefit his business in the form of advertising and will generate future income. As it is the taxpayer who determines the nature of the expenditure to be undertaken in the conduct of their business (Snowden & Willson's Case) the expenses associated with the taxpayer's sponsorship of motor cycle racing are deductible under section 8-1 of the ITAA 1997. They are in the nature of advertising expenses and are directed to enhance the income producing activities of the taxpayer's business and are not excluded on the basis of being capital or of a private or domestic nature.
http://law.ato.gov.au/atolaw/view.htm?locid=%27AID/AID2005284%27
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