Sponsor funds and taxes

jaymancds

Member
As I look at funding for my race program, I ran across a question I am not familiar with. If I get a sponsor that wants the marketing write-off for sponsoring me, what documentation do I need to have? Do I need to declare my racing as a business for the IRS to let them write off their sponsor dollars? I'm not overly concerned with it on my end (expenses and such) but I want to be prepared in case I run across it. Has anyone dealt with this, and what do I need?

***I'm going to talk with my CPA to see what they say, but I don't think he knows a thing about how race team taxes work***
 
Keep in mind that all income needs reported, regardless of whether you run your race team as a business or as a hobby.
You can write off racing expenses regardless if you race as a business or a hobby.
With it being a hobby though, you are limited to expenses up to the amount of income the hobby produces. (ie you can't show that it loses money)...and IF you choose to create a business, you need to show that your level of racing can support your lifestyle and be able to be profitable at some point (generally accepted 3 years.)
If you have your own business, don't expect to be the main sponsor of your race team (on paper at least.) That's a big red flag. Kinda moving money from the left pocket to the right, won't fly with the IRS. Not to say that you can't support your own team, but you also need to show other forms of promotional and advertising expense.
Then there's the snafu of transporting your race team to the track in anything over 10,000 gvwr.
I always thought this was funny, since the DOT considers ALL racing for money to be "professional."
Some individual states are much more critical on this than others. Just be aware that it is a very real problem.
Another example of way too big bureaucratic government.

Disclaimer:
I am NOT a tax expert and am only providing arm-chair advice I have learned over the many years I have been involved in racing (both professionally and as a hobby.) Please consult your personal tax attorney/adviser. :)


-----
🏁Thanks and God bless,
Brian Carlson
Carlson Racing Engines
Vector Cutz
www.CarlsonMotorsports.com
Carlson Motorsports on Facebook
31 years of service to the karting industry
Linden, IN
765-339-4407
bcarlson@CarlsonMotorsports.com
 
Keep in mind that all income needs reported, regardless of whether you run your race team as a business or as a hobby.
You can write off racing expenses regardless if you race as a business or a hobby.
With it being a hobby though, you are limited to expenses up to the amount of income the hobby produces. (ie you can't show that it loses money)...and IF you choose to create a business, you need to show that your level of racing can support your lifestyle and be able to be profitable at some point (generally accepted 3 years.)
If you have your own business, don't expect to be the main sponsor of your race team (on paper at least.) That's a big red flag. Kinda moving money from the left pocket to the right, won't fly with the IRS. Not to say that you can't support your own team, but you also need to show other forms of promotional and advertising expense.
Then there's the snafu of transporting your race team to the track in anything over 10,000 gvwr.
I always thought this was funny, since the DOT considers ALL racing for money to be "professional."
Some individual states are much more critical on this than others. Just be aware that it is a very real problem.
Another example of way too big bureaucratic government.

Disclaimer:
I am NOT a tax expert and am only providing arm-chair advice I have learned over the many years I have been involved in racing (both professionally and as a hobby.) Please consult your personal tax attorney/adviser. :)


-----
🏁Thanks and God bless,
Brian Carlson
Carlson Racing Engines
Vector Cutz
www.CarlsonMotorsports.com
Carlson Motorsports on Facebook
31 years of service to the karting industry
Linden, IN
765-339-4407
bcarlson@CarlsonMotorsports.com

So hypothetically, I get a sponsor that gives me $100 bucks a race, and I win another $50. I cant show expenses for tax purposes greater than $150?
 
Here's the irs form most if not many tracks require.
It makes your attendance at the track done with the understanding you have a business relationship with the track as a private contractor.
If your there performing a service for the track as a private contractor then your a business no matter if your making or loosing money.
All the irs cares about or should care about is if you pay taxes on profits.
If they have rules allowing you to deduct business losses then it's their rules you follow not your rules.
Is it written in the irs rules addressing how much loss you can take I don't know and if it's there then you need to follow it.
It's cut and dry if they accept taxes per your business agreement with the track then your a business.
What gets complicated is your also a performer no different then an actor working on Broadway.
... see your cpa I really don't know just winging it ... :)

edit: here's the form from a track site:
http://mercerracewaypark.com/wp-content/uploads/2018/12/IRS-form-W-9-rev-10-2018.pdf
edit again: here's some info on private contractor earnings
https://entrecourier.com/2019/07/17/understand-profit-and-loss-as-independent-contractors/
 
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Certain expenses can be written off by a sponsor if, to a 501 C4. Application for a 501 C4 is very inexpensive compared to a 501 C3 ( you know; the one Walmart hides behind so they don't have to be bothered by you). A 501 C4 is a non-profit that pays taxes; like a hobby home based racing team. It allows you to provide a legal allowance to a sponsor that is tax deductible on their end. Becoming a 501 C4 is an easy application with a low fee.

The benefit to the sponsor is they have a legal tax deduction making it more appealing. You will have to provide a receipt that includes your 501 C4 number. Simple and easy.

DK
 
confused as usual, found this:

IRS regulations do not allow taxpayers who donate to 501(c)(4) nonprofit organizations to claim their contributions as deductions on their income tax returns
 
I believe that passage refers to individual taxpayers, Paul, not to businesses.
Otherwise, you (or your spouse) could donate to your own race team. (Again taking from the left pocket and giving to the right.)
Folks really should consult their tax attorney over these matters. The laws change often and can be very tricky, the result being that you can get in all kinds of trouble if they're not followed to the "T."
Taking advice from armchair tax consultants can be dangerous. :)
 
https://www.irs.gov/charities-non-profits/other-non-profits/local-association-of-employees-501c4
This type of organization is open to the public. We used it for the little league baseball teams to collect sponsorships as well as for our racing team. Remember, it doesn't provide provide you tax exemption for money you put into your team but it does provide exemption to sponsors as an expense to their donation.

I will qualify this by saying I have never had blow-back from a sponsor that took the deduction. I also never tried to deduct personally any money I put into the team. I pretty much hid all the receipts from the wife anyways.

DK
 
https://www.irs.gov/charities-non-profits/other-non-profits/local-association-of-employees-501c4
This type of organization is open to the public. We used it for the little league baseball teams to collect sponsorships as well as for our racing team. Remember, it doesn't provide provide you tax exemption for money you put into your team but it does provide exemption to sponsors as an expense to their donation.

I will qualify this by saying I have never had blow-back from a sponsor that took the deduction. I also never tried to deduct personally any money I put into the team. I pretty much hid all the receipts from the wife anyways.

DK


You may be able to hide receipts from "the wife" and "the IRS" for a while, but eventually, they catch on, and it catches up to you. ;)

Honesty is always the best policy.
 
My cpa put it to me like this and the companies who have sponsored (charity) me in any of my racing endeavors look at it like this. they can give and i can receive $599, they can claim it and i don't have to. if its 600 or more it needs to be claimed. NOW, having said this, the IRS wants to know where all of your money comes from so they can tax it... if the track does not send you a 1099 you don't have to claim that income either... well, its not being looked for anyway. other options for sponsors is to get them to pay for items directly. season pit pass, tires, fuel ect. one guy gave me a visa gift card for $$$ and claimed it and the others he purchased as gifts for his employees.. gas cards are great too... options around the tax and business issue.... Karting is a hobby unless you someone like Don, or ARC who its part of the industry. My.02
 
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