The fundamental trick is to have the company doing the sponsorship belong to
you. Then you can treat the sponsorship as an advertising expense and have all
the depreciable assets belong to the company. I investigated all the aspects
of this, and decided it wasn't worth the effort for the relatively small
expenditures I was making in racing. It's audit bait--and the IRS will be
counting your socks and shorts.
In truth, I should have gone ahead and done it--I have the world's most
tedious accountant, who keeps everything squeaky clean while still ensuring
that no expense goes unreported. The IRS has come visiting on two occasions,
and left with their tails between their legs both times. I actually had one
auditor tell me he would NEVER audit our company again.
-----Original Message-----
From: fot-bounces+billb=bnj.com@autox.team.net on behalf of John Frymark
Sent: Fri 11/2/2007 1:51 PM
To: toodamnfunky@comcast.net
Cc: fot@autox.team.net
Subject: [Fot] Sponsorship of Vintage Racing
While the topic of Corporate Sponsorship in vintage racing can be
viewed (critiqued?) in many ways, there is a tax implication that
should be considered. I am no tax expert. I looked into something
similar a while ago so I can offer these comments.
A sponsor can justify their expenditure as advertising expense if it
meets basic "smell tests", i.e. an activity that gets their name or
product in front of their target market generating sales and/or
goodwill.
A for-profit entity receiving this sponsorship treats it as income.
Unfortunately, it is impossible to claim that amateur vintage racing
by itself, with no prize money, is a for-profit activity. It is
therefore considered a hobby and "There is a one-way tax rule for
hobbies: Income from a hobby is taxable as "other income" on form
1040; EXPENSES ARE DEDUCTIBLE ONLY TO THE EXTENT YOU REPORT HOBBY
INCOME, and the deduction is limited on Schedule A by the 2% adjusted
gross income (AGI) floor for miscellaneous deductions. Hobby losses
are considered NONDEDUCTIBLE PERSONAL LOSSES. A profitable sale of
hobby collection or activity held long term is taxable as a capital
gain; losses are NOT deductible." JK Lasser's federal Tax Guide 2003
As we have all seen at Vintage Races, some participants have
"sponsorship" by their own businesses. Gil Nickels' Far Niente Winery
brought the transporter, cars, support crew, hospitality tent... the
whole nine. I am sure this was all part of the winery advertising
budget and assets of the business. Generally, the nature of hobby
racing makes our expenses purely out-of-pocket...unless we have a
sideline income producing business that benefits from our racing
activities. Maybe some other FOTers want to weigh in here.
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