I'm not a tax expert, but I do know a fair amount about this.

First off, there is no "minimum" income level. Per the IRS, if you earn money it is taxable, although you can offset that income by declaring expenses related to the business.

You'll probably just do all of this on a Schedule C form. I would think you would just do it as a sole proprietorship. Although after that thread about some guy possibly being sued for "touching" someone, maybe you'll want to incorporate!!

Expenses you deduct have to be business related. If its also used in your personal life, you have to keep track of how much percentage-wise. I would highly doubt the bike would qualify, or a power tap. The certifications and seminars would definitely count, and costs for say software to track clinets.

I'm not sure about HAVING to register. It only costs about $25 to set up a "Doing Business As" through your county (how it is done in NY, anyway). I think technically it might be required if you are running a business from your house. I'm not sure if this is subject to your state sales tax. If it is, you'll have to get a special tax ID number probably.

I'd go the IRS' web site and read about business stuff, go to MA's tax site as well. Perhaps pick up a book on it. One small book I liked, even though it is aimed at women, was "Minding Her Own Business" by Jan Zobel.

Congrats on your new business!

I have been a "professional athlete" for the last couple of years, despite being decidedly amateur in athletic abilities. Here's how it all started...

My wife and I and a friend entered the Balance Bar 24-Hour Adventure Race in Beaver Creek, CO in August, 2003. The top prize for the amateur division was a 2-year lease on a Ford Explorer for each member of the winning 3-person team.

Well, we won and the value of our prize was $18,000 for me and $18,000 for my wife. It was sweet for us both to be driving around a brand new vehicle for free, but the tax consequences were worrying.

After a conversation with a tax attorney friend, we simply started keeping track of our adventure racing expenses and filed a Schedule C for that year's taxes. What we discovered is that if you're a "professional athlete", just about anything recreational can qualify as a business related expense. This includes travel for races or training (and associated lodging and meals), all gear and clothing, books, videos...anything you can argue is needed to train and compete to the best of your abilities.

Bottom line, we split the income over the three tax years that the lease spanned, and have had no trouble offsetting it with our 'business' expenses. We've even declared a small profit each year just for kicks. For 2006, now that the car lease income is over, I strongly suspect we'll have a substantial loss this year. ;-)

Your situation is a bit different, but I could see making an argument that your new bike is required in order to demonstrate certain training techniques that you teach in your coaching business.

Keep in mind that this message is not tax advice; consult your own qualified tax advisor before doing anything similar, blah, blah blah.

I'm interested to hear from others who may have similar experiences (or actual financial training)...

All of your income is taxable, no minimum threshold. If you are reporting your business income, use a Schedule C. Incorporating is expensive, increases reporting requirements and will have no advantage for you at this point.

You can try to deduct the cost of a bike (it would be a capital item you would depreciate over the years) but there is no way it will stand up in an IRS audit because it is a personal item. You can give training advice, without having to own a bike. Nice try though.

As a hint, don't think this is a free ride to lower your taxes. The IRS is taking a hard line on all Schedule C's that lose money, especially if there is no reasonable expectation of profit. To offer some training advice and then deduct personal expenses has all the trappings of an IRS audit. At best, I would deduct some expenses to break even so you don't pay tax on the income, but once you start using the business loss to offset employment income from your job, you're treading on thin ice.

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You sir, are my new hero! - Trifan 11/13/2008

Casey, you are a wise man - blueraider_mike 11/13/2008

Casey, This is an astute observation. - Slowbern 11/17/2008

Just kidding regarding the bike ... sorta ;-) The main reason I'm asking the question is that I want to do things right.

Thanks for the hint regarding lowering taxes. Basically, I'm looking for a way effectively reduce the cost I incur doing those things that I mentioned. Looks like it's only going to be a couple $100/month thus far, so basically I'm trying to not lose money. How's that for a business plan? Carmicheal must be quivering in his boots...

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Josef
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As others have said, you should file a Schedule C to report all of your business income and expenses. Your expenses would be anything relating to your consulting business. There are no registration issues with the federal government, and I would suspect nothing in MA either.

Do you travel to seminars for your coaching business? All of the travel costs (hotel, mileage, food) are deductible, as well as the cost of the seminar.

How do you contact your customers? By phone? Long distance charges are deductible. By cell phone? How many minutes? A percentage of your cell phone bills might be deductible. Do you email? Do you write their plans online, or at least on your computer? Part of your internet access fees, and perhaps a portion of your computer, could be deductible.

Do you run with your customers? Swim? Ride? How many miles/yards? Can you get to the point of deducting a portion of your running shoes? Your pool fees? Your BIKE?!?!? Maybe. Depends on how often you coach them in person, and how aggressive you are with your taxes. If you do one ride a year of 50 miles with your client and you ride 5,000 total miles, it probably isn't worth the hassle to deduct the 1%.

You'll want to keep good records to detail any of these expenses you deduct. But then, we're anal triathletes so that shouldn't be too big of a deal. :-)

If you do run out of expenses down the road and can use a room in your home exclusively for consulting, you can deduct a portion of your utilites, insurance etc., based on the square footage of your office as a % of your home.

Don't forget car mileage if you visit them (keep a log), and you should have no trouble getting your income down. The mileage deduction is I believe now $0.44/mile so it can add up. You don't need gas receipts if you use the standard rate, just keep a log and it can add up quickly.

Either way, you can at least for now, get your income to nil.

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You sir, are my new hero! - Trifan 11/13/2008

Casey, you are a wise man - blueraider_mike 11/13/2008

Casey, This is an astute observation. - Slowbern 11/17/2008

Set up an LLC or a corportation, but remember that corps get taxed twice, once for the corporation and once when you get paid. LLC profits get passed through to your personal income, if I rememebr that conversation correctly. Also that helps shield your personal assets from any liability issues. When in doubt transfer major things to your partner ideally prior to lawsuits according to my lawyer.

That being said I deduct just about everything, training camps, certifications, shoes, swim fees, the snickers i bought while riding with my clients, bikes, race fees, flights to races, hotels etc. Documentation. Keep good records and get a good tax person.

He files a Schedule C for me, although previously I was an independent contractor, then minority owner, but now as the sole principle I am curious as to how that will effect my taxes.

PM for more info if you need.

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Brian Stover USAT LII
Accelerate3 Coaching
Insta

just checked the fee for setting up an LLC in MA - $500! Damn! What do these people think I am, an oil tycoon?

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Josef
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it was about $75 in AZ.

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Brian Stover USAT LII
Accelerate3 Coaching
Insta

I'd be real careful with a lot of this. People are recommending stuff that most likely wouldn't hold up in an audit.

Mileage: You can't deduct the cost to go from your home to Client #1. This is personal commuting expenses. Same as me driving to my office to go to work. Now, if you go from Client #1 to Client #2, that mileage is deductible. If you then drive home, that last leg is not deductible.

If you set up a work location outside of your house, then if you start at that location and drive to Client #1, then that mileage is deductible. (See IRS Publication 334)

As for the home office, you have to be able to prove it is 100% for business. No personal belongings. And you have to use it a lot for business, not just once in a while. (And, read below about where the IRS might consider your principle place of employment.)

Meals (like the mentioned Snickers Bars) are only deductible if you are travelling for business overnight (or far enough to require a resting period). Even then, only a 50% deduction is allowed in most cases. (Pub. 334)

A bike would be "Listed Property", because it is something generally used for recreation. You'd have to be able to show it is used over 50% for business (otherwise nothing is deductible). (See IRS Publication 946) No matter what, it is going to catch an auditor's attention.

Clothing: There's a pretty well-known case of the singer Stevie Nicks. Tried to deduct her stage dresses as an expense. Said she only wore them on stage, they got all sweaty, no good for personal use. She lost in a fight with the IRS over that. Also lost trying to deduct a home office...the IRS said her place of employment was a stage somewhere. Unless you're coaching people in your basement or something, you might have trouble with this.

Race Fees: Not if you're just a coach.

You can put whatever you want as a deduction on a Schedule C, and I've heard of some out-there stuff that people do and have never been called on. Doesn't mean you aren't risking penalties and interest if you get audited.

thanks for the great story. congrats on that! sounds like a sweet deal. I'm sure you're a little less 'amateur' than you let on.

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Josef
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Thanks TriAlbany for the helpful post. Since you seem to be quite knowledgeable about this stuff, do you see any problem with what I've been doing the last couple years (see my post above about winning the car leases)?

I haven't been audited since I started filing a Schedule C as a "pro athlete", but then again I haven't declared a loss. It sounds like I should reconsider declaring a loss for 2006, particularly a loss of substantial size. Is that last part an understatement...?

"Keep in mind that this message is not tax advice; consult your own qualified tax advisor before doing anything similar, blah, blah blah."

:)

I'd talk with a tax accountant. I'm in finance, but I'm not in tax accounting.

When I first read your post, I thought you'd be fine for the past years. If they're going to tax you for winning prize money for racing, you should be able to offset it with reasonable expenses. Yours sounded reasonable to me. If you had claimed losses each year, then I think there might be a problem if you don't meet the "business" requirements I mention below. Since you declared a small profit, I would think you're fine.

One thing I've looked into is the "hobby loss" rule. Basically, if you're doing something that people do for fun and you have losses year-after-year, they say you're not in business to make money but you are engaged in a hobby. No tax loss is allowed.

In an audit, they would want to see that you treated being a professional athlete as a job and had a reasonable expectation of making money. Did you get sponsorships? Do you treat it as a business (have a web page, not go crazy on expenses, etc.)? Did you win other prize money? Do you count on this income as a main source of funds? These are the types of things considered.

There is a rule about making a profit in 3 of 5 years...that helps you to prove its a business. But there are other criteria.

Here is a link to an article aimed at writers. The same thinking would go into any possible "hobby".

http://www.allworth.com/Samples/Writers_Legal_Guide.pdf#search='hobby%20rule'

I'd think long and hard about a big loss. And I wouldn't brag about a "tax dodge" on ST!!

There are also rules about closing a business. Not sure if any of it would apply to you. I would think if you have no income and aren't claiming any expenses that it wouldn't be an issue. But back to that wise quote I started this post off with...

Congrats on the lease, by the way. That's cool.

Hi everyone. I am a CPA with a Masters in taxation, I've been practicing with the Big 4 for the past 7 years. There is a lot of well-intentioned advice on this thread, and some of it is even accurate. That being said, for each piece of advice I've seen, there are one or two misapplied theories that could really expose you to IRS scrutiny.

The biggest thing that needs to be understood is, unless the coaching/consulting gig will become your primary source of income, the IRS will NOT allow you to generate a loss from the activity. As one poster mentioned, the IRS will assert that the activity is a "hobby" under IRC Sec. 183. They will permit the income generated to be taken to zero for legitamate deductions (some of the deductions which have been thrown around are legitimate; most are not...this is a topic we really need to discuss item by item depending on your personal facts. But the notion that race fees or ALL meals or even a bike are deductible is not the case), but they will not allow you to generate a loss.

There are nine factors in the 183 regulations that the IRS and the courts will examine to determine if an activity is a hobby, but I'm warning you, the case history is HEAVILY sided against the taxpayer when you're dealing with an activity that is recreational in nature or which brings the taxpayer a high degree of personal pleasure. For example, the most heavily litigated courses are related to Amway salesmen and horse breeders. Almost unanimously, the courts have held that these were recreational activities that the taxpayer used to convert personal items into business deductions, just as they would assert you are attempting to do here.

In summary, there is a lot to consider here, and it is easy to get wrong information. I would urge you to touch base with a tax practitioner. For example, that poster (i dont have the name in front of me) that was offsetting lease income for three years with racing expenses will probably be fine for those years, but now you are talking about generating "large" losses. That is NOT going to fly with the IRS one bit. There is absolutely no way that, upon audit, you would convince them that you were in the trade or business of adventure racing; the factors are very heavily stacked against you, and I only read one paragraph!

You may also PM me and we can exchange email addresses or phone numbers for any questions you may have. I also do several hundred personal returns on my own, so if you reach the point where you need a preparer, I would be willing to discuss doing your returns.

I'm in a similar position as TriAlbany. Our winnings were around $50,000 for one race in the 3rd year we did that specific race. We took that race very seriously, but were intending to claim the income as hobby income. The previous winners have told us they filed as a business so they could deduct much more which based on this thread seems to be relatively safe. Since it is somewhat unlikely that we will ever win that much again, is there consequence to filing as a business for 2005 only?

FYI...it was mdbockmann who won the lease...I was just commenting on the tax issues.

I don't know the answer to your question, but I would GUESS that there are no consequnces to doing it only for one year. Kind of like gambling winnings...if you hit it big at the track, that's the only year you bother keeping track of gambling losses to offset that gain. I'd think you could deduct any legitimate racing expenses that you can...but talk to a professional tax person.