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discuss forming an S-Corp. for the
racing operation with a qualified
business attorney and your CPA.
Your existing business would pay
sponsorship fees to the S Corp. to
cover racing expenses. Usually the
S-Corp. would own the race car and
bear all the expenses. Be aware
that retitling certain assets such
as a tow vehicle into your S-Corps.
name could trigger a vehicle sales
tax ramification. Also be advised
“Slingshot Jay the CPA”, Builder/Driver “The Number Cruncher” in his front engine
alcohol-injected dragster. that any business entity that shows
Business Travel and Meals: For federal income tax purposes, large recurring losses year after
If you travel out-of-town for net Sch C profit is simply taxed at year may draw scrutiny from the
your racing business, here are the taxpayer’s marginal individual IRS. At least with an S-Corp. in
some basic guidelines for the tax income tax rate. However, an place, some planning and control of
treatment of travel costs: additional 15.3% federal tax (the SE sponsorship revenue and S-Corp.
or self-employment tax) is levied on net profits may be possible.
1. You must be away from home Sch C net profit.
for substantially longer than a C Corporations
normal workday and therefore Limited Liability C-corporations are not pass-
require sleep or rest to meet Company (LLC) through entities. They incur their
the demands of your work. LLC’s are “passthrough entities” own level of federal income tax
for federal income tax purposes, on net profits. Although they are
2. Travel expenses which are which means that no federal income generally reserved for larger private
“ordinary and necessary” tax is levied on the LLC. LLC’s and publicly traded businesses, that
in your line of work will be are a popular form of business trend has changed somewhat with
generally allowed. This entity, because they provide some the recent C-corp tax rate reduction
includes hotel, parking, etc. from 35% to 21%. Since C-corps
of the liability protection provided
3. Meals while away from home by corporations, along with the are not subject to the hobby loss
are generally 50% deductible, as passthrough tax treatment and profitability rules and presumptions,
long as they are not “lavish or flexibility of partnerships. Forming this entity form may become a more
extraordinary”. an LLC often requires preparation popular choice for smaller racers
of additional annual federal and/ and race teams.
4. Entertainment expenses are or state business tax returns and
a non-deductible business payments. Forming an LLC with
expense. Do not list anything more than a single member often Disclaimer: No Rendering of
on your return that sounds complicates tax preparation costs Professional Income Tax, Legal, or
entertainment related. significantly because generally, a Insurance Advice
The information contained in this article
federal Form 1065 Partnership tax
Basic Primer for Business is provided for general informational
Entity Choice and Income return will be required. Therefore, purposes only. It is not intended to
Tax Treatment: a single member LLC generally provide, and should not be relied on
requires significantly less federal for, professional income tax, legal or
Sole Proprietorship (Sch C income tax compliance work. insurance advice. No guarantees of
Profit or Loss from Business) results or accuracy of information is
The sole proprietorship is by far S Corporations intended. No information in this article
the simplest business form to adopt. Racers who have an existing may be used for improperly avoiding U.S.
business to promote may want to income tax and/or penalties.
SPRING 2021 Nitro Madness Magazine 59
