jwmbishop Posted March 25, 2010 Report Share Posted March 25, 2010 I opened this thread to create a sounding board and resource for those that truly ARE in the business of racing or those that wish to be. This is one of my pet representations. I am an Enrolled Agent - EAs are the ONLY profession allowed by the IRS to represent the taxpayer that are granted that auth by passing an IRS administrered test that covers ALL areas of US income taxation! Even the highly regarded CPA may be well trained on double entry books - but that does NOT mean he is authoritative on the Tax Code. EAs read the Tax Codes like most people read the newspaper! Many folks ARE in racing as a business and leave losses on the table out of a lack of understanding how to model the operation to withstand the hobby loss scrutiny of the IRS. Conversly some try to meet the business rules while they are truly in it as a hobby. Either way cost the taxpayer $$$! Hopefully everyone is aware of the ramifications of claiming your racing to be a business - IRS scrutiny usually determines it's a hobby and then losses are limited and can not exceed the actual earnings of the hobby. (A business can allow a loss to apply against other incomes - W2 included). Usually this determination is based on the taxpayer not being able to fully explain the "business" part of it and making statements that seem to support the arguement but actually help the IRS! To open I will lay out the three basic rules for it to be a business: 1. Must be PROFIT motivated 2. Must be conducted like a business (separate books, business plan, marketing etc) 3. Must have reasonable expectation of profitability when compared to total earnings (if 98% of your time is earning wages its harder - but not impossible - to claim that 2% of your time is expected to be more profitable). Nothing in there says if you love your work its a hobby! Nothing in there says if you DO end up spending more than you make its a hobby. Every racing operation must start somewhere and any start up incurs losses - its how you deal with CHANGING losses to profit that will help the most with business arguement. With that I will take questions and comments and see how we can grow this part of our thinking to keep extra $$$ from going to taxes that are not legally due. Link to comment Share on other sites More sharing options...
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