This website explains the hobby tax pretty well I think.

From what I understand you can only deduct up to the amount you made from your hobby off of your taxes.

So you are right you can't make a profit, but you also can't just write off every new bike part you purchased during the year.

[url]http://www.wwwebtax.com/deductions_z_other/hobby_losses.htm[/url]

thanks for the link, but i understood very little of that.

so if i win cash in a race (look, i can dream), that's taxed as capitol gains? it says "A profitable sale of your hobby collection, such as stamps or coins, is taxable as a capital gain on your tax return. A loss upon the sale is not tax deductible on your tax return." so does that mean i can deduct race fees if i don't win?

can i write off a wheelset?

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Your favorite mafia sucks.

If you win money, you can use expenses to offset that income, but if its a "hobby", you can't "go negative", you can't get a deduction larger than the amount of income related to the "hobby". Unless you can prove that you are not doing it as a hobby (show the race $$ is important to you getting by, show you treat bike racing as a professional job, etc.).

So....for almost everyone not a "pro"...spending is greater than prize money. You don't have to pay taxes on the prize money, but you can't lower your tax bill because you bought a $1,000 set of tires.

What that quote means is that if you DID earn a profit from bike racing one year (say won a $2,000 prize and only spent $1,000 on race entries, travel, new equipment), you'd have $1,000 of taxable income.

But if you have a loss ($4,000 in bike parts, races, travel, etc. versus $30 in prize money), you can't claim a loss. It's a "hobby" you do for fun, not as a business.

[reply]thanks for the link, but i understood very little of that.

so if i win cash in a race (look, i can dream), that's taxed as capitol gains? it says "[font "Arial"][#050649][size 2]A profitable sale of your hobby collection, such as stamps or coins, is taxable as a capital gain on your tax return. A loss upon the sale is not tax deductible on your tax return." so does that mean i can deduct race fees if i don't win?[/size][/#050649][/font]

[font "Arial"][#050649]can i write off a wheelset?[/#050649][/font][/reply]

No, it means you can't.

If you race as a business (professional athlete) and have income and expenses, you can deduct the expenses directly attributable to the creation of the income, to reduce your tax burden on the income - what the above means is that unless it's a real business year in and year out, you can only deduct up to the level of the income, you can't just "take a loss" and write it off. No income, no deduction. No intent to make a profit, no deduction. There's no "hobby deduction" in and of itself, it's only in the context of a legitimate attempt to make money, which is pretty much a non-starter for anyone racing amateur triathlon, even if there is the occasional tangible prize or prize money awarded. You can't win $100 at your local 5K and then write off your trip to Kona (or your new wheels).

I have a dumb question:

Can you deduct what you spent on your Hobby? ie; apparel, shoes, etc?

Again, only to offset any race prize money you may have won. If you won prize money, that is income. But you no doubt had expenses that were at least as much.

The short answer for nearly everyone is NO DEDUCTION to lower your tax bill.

The "Hobby Loss Rule" is to prevent you from claiming a loss on a pleasurable activity you do as a hobby that is not a business. It doesn't help you at all. If you have a gain on your stamp collection, you're supposed to pay taxes on it. If you have a loss...oh well, no deduction.

Example: You collect first edition books. You sell off your collection for $30,000 on ebay. That is income. You can claim deductions for the cost of the books, the selling fees, any appraisals, etc. If you paid $20,000 for all the books and selling fees, you have a $10,000 gain, you're supposed to pay taxes on that $10,000 gain.

If the books cost you $40,000 and you sell them for $30,000, you have a $10,000 loss. But if you collected books as a hobby, then you can't take a deduction on your taxes for this loss. You can only take the loss if you were selling the books as a business. The IRS will look at are you operating like a business would? Advertise? Spend a lot of time on the business? Keep detailed accounting records like a business? They'll need to be convinced you are a business to allow the loss.

Here are the types of things they say they look at to determine if you are truly a business:

In determining whether you are carrying on an activity for profit, all the facts are taken into account. No one factor alone is decisive. Among the factors to consider are whether:

1. You carry on the activity in a business-like manner,
2. The time and effort you put into the activity indicate you intend to make it profitable,
3. You depend on income from the activity for your livelihood,
4. Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business),
5. You change your methods of operation in an attempt to improve profitability,
6. You, or your advisors, have the knowledge needed to carry on the activity as a successful business,
7. You were successful in making a profit in similar activities in the past,
8. The activity makes a profit in some years and the amount of profit it makes, and
9. You can expect to make a future profit from the appreciation of the assets used in the activity.

For all but a few people actually trying to make money at triathlons/races, you are in this as a hobby and can't deduct your expenses (unless it is to offset any prize money you happen to win...can't have a net loss).

I'm clear on the basics discussed here, but what about hypothetical twist on this question.

What if age grouper wears his Postal (or now Discovery) team jersey to watch pro race (Tour of GA for instance) and manages to get his jersey signed by Lance. Then sells autographed jersey on ebay for $500 more than purchase price.

Is $500 taxable as capital gain?

Can expenses related to cycling hobby be used to offset this gain or are these expenses considered unrelated to this collectible jersey hobby?

Just curious.

I'm not a tax accountant (but I've dealt with this hobby rule before). That said, here's my take on your hypothetical:

You "made" $500 on the jersey. In order for you to get that to sell, you had to travel to Georgia, pay for a hotel, eat while there, etc. Your expenses outweigh your profits...no taxes due, but also can't claim a deduction for any travel expenses which are in excess of the profits of the sale ($500), unless you want to prove you are trying to make a living in the collectibles business (see guidelines above). Your costs for a bike, races, etc. don't have anything to do with it.

I highly doubt the IRS would touch you on this example. In NY, there is a "garage sale" rule. Can sell up to like $600/year without having to claim it/prove original cost/etc. But if you go around and buy up "junk" and have a garage sale 40 weekends a year (or have 5,000 ebay sales), and you make a profit, that is taxable.

If you lived next to Lance and had him sign 50 jerseys to help you pay for college, and you sold them each for $500...then you're supposed to pay taxes on those profits.

A similar hypotheical: You go to a baseball game. Catch someone's record-breaking homerun ball. Sell it at auction for $1,000,000. That is taxable income. You can offset it with costs (the ticket for the game, auction fees, security), but the net profit is taxable. And you can't offset the profit with say the cost of your baseball card collection. Although I read about a guy who bought up huge blocks of tickets for certain games in order to try and catch a record-braking Barry Bonds' ball. If he had been successful and sold the ball, I would think he could claim all those tickets as an expense.

You only get to deduct to the extent of earnings. I used to deduct all my motorcycle expenses as I was trying to turn it into a busisness, honestly. It becomes a problem is if you can't show a profit in 3 out of 5 years. The IRS will declare your effort a hobby and dissallow your deductions. So unless you lie and cheat, you will not be able to deduct a single cent on your hobby unless you are getting prize money. So now you pay tax on your prize money, but get to deduct that amount. Best leaving things as they are.