Professional racing is an expensive sport that may require substantial investments if racers are to be competitive. Professional athlete bookkeeping allows you to keep track of expenses and determine if they can be deducted as part of the cost of doing business. Accurate bookkeeping may show how you can use financial losses from racing to offset income received from other sources.
What Things Can Professional Racers Deduct?
The answer depends on if racing is your business or if it is a hobby. Questions a professional athlete CPA would ask to determine if your auto racing is a business or hobby might include:
· Are you keeping accurate books? Are these being used to improve the performance of your business?
· Are you planning to generate profit from earnings or the appreciation of assets?
· Have you been able to go from being unprofitable to profitable with auto racing?
· Do you depend upon the income you earn from auto racing for your livelihood?
· Have you made adjustments to your methods of operation with the goal of improving profitability?
Once it’s established that your auto racing is a business, the cost of supplies, including tires, replacement parts, oil, fuel, and tools used to repair or maintain your vehicle may become deductible. Auto racers might also include things used in their auto racers' shop, including printer ink, paper, and other supplies, as a deduction in their professional athlete tax planning.
Tax Planning Tips for Auto Racers
Charitable planning can play a significant role in an auto racers' life. Your accountant may structure charitable giving in a way that combines your goals of supporting a cause that is meaningful to you while simultaneously maximizing charitable income deductions, especially during high-income tax bracket years.
The jock tax may impact auto racers whose racing has them competing in multiple states. It would not be unusual for a professional auto racer to pay state and local taxes in 10 or more states and federal taxes. Your financial adviser will need to be familiar with the tax requirements in each state you race in.
In most cases, professional auto racers cannot take a credit on their residence state tax for the taxes they paid to cities. However, an experienced entertainment industry accountant might identify circumstances where their client’s auto racing entitles them to partial credit on their residence state if they pay taxes to other states.
Choosing Residency in Certain States May Minimize Your Tax Burden
Auto racing may take you all over the country. Still, it may be advisable to choose a state of residency that is not only convenient but that also minimizes your tax burden. States like Florida and Texas have no sales tax. This could significantly impact professional auto racers' tax responsibility.
Creating Your Success Road map With a Financial Adviser
Fusion CPA offers professional athlete CFO business advisory tailored for professional auto racers. Our team of experienced entertainment industry bookkeeping specialists provides financial management services, including planning and implementation of tax mitigation strategies, philanthropic planning, charitable giving strategies, estate and trust planning, and the preparation of state and local income tax returns.
As part of our professional athlete CFO business advisory service, we can serve as a professional athlete’s comprehensive accounting department, reconciling accounts, preparing financial reports, processing cash receipts and disbursements, and reconciling an accounting for investment activity. You can learn more about our services by clicking the button below to schedule a complimentary discovery call today!
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.