tax time: race car as a business

IHRA gave permission to post an article that I wrote about the racecar as a business. It was run in IHRA's "Drag Review Magazine" '06 Issue 2, page 34-35
It includes info on the business tax research credit for cutting edge R&D.
look up: www.racecarbook.com
click on: articles
click on: Tax Time (520kb) to preview or download.
Bob Szabo
bob@racecarbook.com
(707) 446 2917
author of the book "Fuel Injection Racing Secrets"
new book on methanol racing fuel coming soon.

 

I was extensively audited by the IRS about 12 years ago due to my racing business endeavors. In the end, they determined I had a legitimate ongoing business and made no adjustments to my tax returns.

The key is to show intent to make a profit, proper bookeeping, bank checking accounts and debit/credit cards in your racing business name and a DBA helps. Proof of an ongoing search for sponsorhip and the ability to point out other who are making a living doing what you are doing is key. Otherwise it would be very easy to prove your "business" is just an expensive hobby.

If it smells like a duck, walks like a duck...

What's interesting to me is the test the DOT has to determine if you are commercial or not when you get pulled over. If you race for a trophy they consider it compensation and you are commercial. Based on that they required you to operate your rig as any business would...as a commercial vehicle. If you walked in to an IRS tax audit after writing off hundreds of thousands of dollars, plus DOT permits, IFTA permits and commecial vehicle license fees, etc and you told them you wrote all that off because you race for a trophy they'd throw you in debtors prison for the rest of your life.

Don't be afraid of an audit but be sure to keep records like any business would.