Advantage of racing company?

[Shannon1530]

I see a lot of racers have a racing company...like so-and-so motorsports or "Joe's Racing"...what is the advantage or purpose of this? What are the benefits?

[Greg Amy]

1) Taxes *
2) A desire to actually "make money" in racing (hah, I kill myself sometimes). **
3) Liability shield ***

* Better talk to an accountant. If you want the tax write-off of the expenses, you better have a business model with a "reasonable" opportunity for profit.
** No further comment.
*** Talk to an attorney. Creating a company purely for a liability shield may not hold up in court.

And while you're at it, read this thread: http://itforum.improvedtouring.com/forums/...showtopic=11734

[DavidM]

Cause it's cool. :snow_cool: I wonder how many of those people actually have a corporation under that name or just use the name because they like it. In order to write-off racing expenses you have to show a reasonable expectation that you'll make as much money as you spend on the "advertising".

David

[JeffYoung]

We did it when we owned 2 rental SMs. As Greg and David said, you have to have a reasonable expectation of making a profit in I think three years (check with your accountant) otherwise your expense deductions can be challenged by the IRS (hobby loss rule!). We had about $7k in rental income per year for two years and showed a small profit before we folded. Racing cars, rather than prepping them for others to race, is a whole lot more fun.

Unless you are in the rental business, or prepping cars for others, then there is no advantage to incorporating and I wouldn't do it. It does help you at all with liability for your own personal racing hobby.

[JohnRW]

Don't forget the wonderful senses of humor displayed by IRS auditors. Laff-a-minute.

[gsbaker]

I wonder how many of those people actually have a corporation under that name or just use the name because they like it.[/b]

A friend of mine raced a Porsche. He spent so much he named his effort "Black Hole Racing".

[JeffYoung]

We've got a guy down here in the SEDiv, great guy, named Wallace Dew. Where the online entry systems allow you to enter a "sponsor," I duly put in my law firm. Hell, they write me a paycheck, right?

Wallace takes a better and more descriptive approach. He types in all caps that his sponsor is "MY BIG FAT WALLET." I love it.

[gsbaker]

On a more somber note, think long and hard before becoming a "dealer" of safety-related gear. It might sound like a simple way to ease the financial pain of racing and maybe make a couple bucks, but if someone gets hurt you will learn the consequences of offering safety advice and being in the distribution channel. It doesn't help if you indemnify the manufacturer, either.

[CaptainWho]

And, to tie in with a thread over in "Tow Vehicles and Trailers", if I incorporate the "race team", am I immediately subject to all of those DOT "commercial hauler" and CDL regulations?

[JeffYoung]

Not necessarily, although it will be far harder to argue that you are not towing for a commerical purpose.

[Team SSR]

A couple of years ago when we were kart racing i started a sole proprietorship for our racing efforts. I built engines and sold parts to add income to the racing operation. Of course we spent way more than we ever brought in, but because I also had a 'real' job, I made money as a sole proprietor. The racing expenses lowered my income. I did have to charge taxes for anything I sold and report it (with a check) every quarter. I also had to keep track of all my winnings as income. Overall it saved us a lot of money, but requires some time commitment as well.

Oh, and +1 on what Jeff said -only spelled better.

[pballance]

And, to tie in with a thread over in "Tow Vehicles and Trailers", if I incorporate the "race team", am I immediately subject to all of those DOT "commercial hauler" and CDL regulations?
[/b]

I believe the correct answer is YES. The minute you make it a business and then use the tow rig/trailer combo for a business use by transporting the race car to a track, then you are "engaged in commerce" and subject to ALL Federal Motor Carrier Safety Regulations. Whether or not you need a CDL is a qualified maybe.

[bonespec]

I'll become a LLC/company when something I've built (tranny) can knock off Greg Amy at ARRC.

Till then, I'll just help people be faster without failures.

[JamesB]

I have an LLC, its to cover me for when I rent the spare car or my car. But untill we have a decent operating income its next to impossible to write off any of our normal racing expenses as advertising expenses by putting a company car on the track.

[joeg]

If I let someone use one of my cars, I sign the log book over to them and have them sign an option for me to buy the car back for $10.00.

As to Hobby Losses, we are engaged in club racing--amatuer.

Unless you have real third party sponsorship money (not yourself or your own business), the only money available is contingency money (not much). You will run into IRC Section 183 Hobby Loss problems because under no circumstances can "prize money" cover your nut.

There is no prize money.

At a Pro Level, you can argue that you reasonably hope to win every race you enter and if such hypothetical winnings can eventually cover your nut, you have "a reasonable expectation of making a profit" and thus a fighting chance with the IRS. I would not think there are enough Pro IT events to generate this kind of support.