About Auto Racing Tax Deductions

 Auto racing has become more popular as a sport, hobby and career. It is enjoyed by many men, children and increasingly women, on and off the track. While those who take part in auto racing may feel that there is nothing greater than being out there on the track, getting paid by the government to do so might be a close second. If you do it correctly, you may be able to claim tax deductions for enjoying yourself.

• Business versus pleasure. One way to get tax deductions for auto racing expenses is to classify the activity as a business rather than leisure activity under Treasury Regulation Section 1.183-2. Be sure to know all business regulations and requirements to ensure you qualify for this deduction.


• Advertising expenditures is another way to claim deductions for costs. This is based on the argument that racing is a business and advertising provides a direct benefit to your business.


• If you can prove that profit is one of your prime goals in your auto racing activities, then many of the related costs are tax deductible. Costs that may be deductions include: gas, oil, tires, parts, travel costs such as airfare, accommodations and meals, entrance fees, licensing, repairs, merchandising, advertising and salaries. If you do it properly and seek expert advice, you could enjoy your new career and get money back.

Treasury Regulation 1.183-2(a) defines a not-for-profit activity as a non-business and non-investment activity. Subsection (b) of Regulation 1.183-2 provides nine factors which you may use to determine whether your auto racing is for profit or not:

• The manner in which the activity is carried out by the taxpayer: The activity is considered to be for profit if it is carried out "in a businesslike manner and maintains complete and accurate books and records."


• The taxpayer expertise or that of the advisors: "Preparation for the activity by extensive study of its accepted business, economic and scientific practices, or consultation with those who are experts therein, may indicate that the taxpayer has a profit motive where the taxpayer carries on the activity in accordance with such practices."


• The time and effort expenditure by the taxpayer: If the taxpayer spends a significant amount of time on the activity, it is a good indication the activity is for profit.


• Expectation for the activity assets to potentially appreciate in value: If the taxpayer expects to profit, this indicates the activity it is for profit.


• If the taxpayer has been successful in carrying out similar or dissimilar activities: "The fact that the taxpayer has engaged in similar activities in the past and converted them from unprofitable to profitable enterprises may indicate that he is engaged in the present activity for profit, even though the activity is presently unprofitable."


• History of profit or loss by the taxpayer from the activity: "Where losses continue to be sustained beyond the period which customarily is necessary to bring the operation to profitable status, such losses, if not explainable, as due to customary business risks or reverses, may be indicative (that the activity is not for profit).” "A series of years in which net income was realized would of course be strong evidence that the activity is engaged in for profit."


• Occasional profits, if any, which are earned from the activity: "Substantial profit, though only occasional, would generally be indicative that an activity is engaged in for profit, where the investment or losses are comparatively small." Additionally, "an opportunity to earn a substantial profit in a highly speculative venture is ordinarily sufficient to indicate that the activity is engaged in for profit."


• The taxpayer's financial status: "The fact that the taxpayer does not have substantial income or capital from sources other than the activity may indicate that an activity is engaged in for profit."


• If the activity brings a high level of personal pleasure or recreation: "The presence of personal motives in carrying on of an activity may indicate that the activity is not engaged in for profit (...) It is not, however, necessary that an activity be engaged in with the exclusive intention of deriving a profit."

Section 1.183-2(b) makes a point to stress that, with regard to whether or not an activity is undertaken for profit, "no one factor is determinative." The information provided here may give you a better idea if you have a case for claiming deductions for your auto racing activities. You can gain further advice and assistance by contacting an accountant.