Managing Your Race Team's Money - Racing As Business

Step two involves the formalization of your racing operation as a business with your state of residence. In the past 10 years or so, as home-based businesses have become more common, many states and city governments have changed laws and made it easier to run a small business out of your home. You need to be informed as to what you can and can't do in a home environment in your area. Go to the city and talk to the people who are in charge of business licenses and develop a better understanding of just what the local laws are surrounding home-based businesses.

You may want to classify your business as an advertising business, as that is really what you are doing-selling ad space. You may already have your race shop in your home, and that may not pose a problem if what you are doing is classified as a hobby. If you make it a business, you may not be allowed to work on your car in a residential setting, so be informed if you change your racing status from a hobby to a business. You simply need to understand the local laws prior to formalizing and structuring your racing as a business. Ask and learn.

There are some real advantages to organizing as a business. Two that quickly come to mind are the ability to depreciate equipment and the ability to deduct many of the costs of running the racing business, depending on how the business is structured. There are many favorable tax advantages to business status. The bottom line is you may be able to save some money operating this way. The key is to really operate as a business, not just a shell developed in an attempt to beat the system. I am not suggesting any tomfoolery or fraudulent activities to avoid any real financial obligations you may have or could develop. You need to operate within the laws that apply to businesses.

Every state has a different take on just what constitutes a business. Once again, you need to be informed. Spend a day or two learning from local government. Hire an advisor, a lawyer, or an accountant that specializes in small business development to help you get started, but mostly to help guide you through the do's and don'ts. These people can help you with making some decisions based on how you structure the business.

Should you form a corporation? That may not be the best move. Maybe a small sole proprietorship would better fit your needs. This is why it is worth the several hundred dollars to spend some time talking with a professional.

Prior to scheduling and spending time talking to any consultant, develop a list of questions:

1. What are the advantages of structuring my race team as a business?

2. What is it going to cost?

a. This is a double-edged sword, as it refers to cost in terms of dollars and cents, as well as the time sacrificed running a business. Be aware that operating your race team as a business will take a bit more time at first, and it will require more discipline from a record-keeping perspective.

3. Will I save money doing this?

a. Will I be able to deduct the cost of my racing from my personal income?

b. If the answer is yes, just what is deductible?
-Fuel?
-Tires?
-Travel?
-Crew costs?
-Professional services, lawyers, accountants, consultants, and engine builders?

4. If I have a really good year and win some big races, do I have to pay taxes on my winnings?

5. Will I have to pay my crew? If I pay, will I have to pay employment taxes?

The idea is that you will be able to maximize your time with the professional you select by developing a list of questions prior to the meeting.

Racing is becoming more expensive, not less expensive. Anybody who has ever turned a wheel on the track knows that speed is expensive. But it does not have to cost you every dime, nickel, and penny you have. The trick is to think smart, ask questions, and fully understand all the options available to you.

A simple matrix makes it very easy to track specific costs on a monthly basis. Simple is better in this type of matrix. Develop a cost column and track it on a month by month basis. Profit and loss is illustrated as well and is easily calculated. This is not rocket science.