Attempting pro tax write offs?

Triathlon Forum
1

I have a guy make some interesting comments to me today at the TBF Golden State tri. He commented that he is doing the deal all the bike shop workers do, or something like that. He said something about he had done some paper work to try and go pro and has 5 years to attempt this. During the next 5 years he says any bike equipment he buys he can write off his income tax. Told me he just bought a new bike for his wife in his name. So, is this guy dreaming or is there a legal way to try and achieve a dream but get a little tax breaks. He is 44 years old.

Dave

2

If you hold an elite card, I think you can write off training/racing related expenses up to the amt that you win. For the 5 year deal I think he needs to set himself up as a business. I’m no accountant but my acctounant just finished my 2004 taxes. Apperantley, I need to adopt someone for a tax deduction - SAC you reading this?

3

Talk to an accountant. They’re the only opinions to trust for something like this.

4

Sounds like he is begging the IRS to audit him.

5

There are tax breaks for job related expenses. As well as for hobbies. I imagine he is trying to use it as a job related expense. However, I would imagine that if he were to get audited, the expense would turn out to not be so job related.

6

I wished I would have gotten more detail on what he was talking about.

I believe I have heard that from a “standard” business you have to make a profit 3 out of 5 years or something like that.

It is interesting to look into. I have to go to a tax guy to file some 1040x’s since I forgot to deduct my kids tution expenses. Not clear what is legal, so, I will pay an “expert”. Guess would be a good time to ask him about something like this.

Again, the comment he made that has logged in my head is the bike shops all do this, or something like that.’

Again, is we have laws that allow one to “legally” play in the gray space, I am all game! They take so much from me that I sure would love to be able to keep just a little, a little bit more.

Dave

7

I am a college soccer coach, I write off:

-laptop and internet: use the computer for work stuff at home.
-DishNetwork: I use games on tv to show stuff to my players and for ideas for set pieces.
-cd’s and dvd’s for burning: I put together videos and music for my team.
-video camera: I use my own to tape games.

8

…
I believe I have heard that from a “standard” business you have to make a profit 3 out of 5 years or something like that…
Dave

The 3 in 5 is a rule of thumb. If you have a business you can lose 5 of 5 but might draw the attention of the IRS. The important part is that you can show you are trying to make money. Do you advertise ect… My wife is a freelance writer, most of her expensise after setup are postage, paper, and ink. She can not contol when they will buy things, but since most her expenses are advertising were not to worried.

So my guess is if you go pro, and go for the write off’s you better show you are trying to be competative, training logs, race times, ect… Not sure what they would do if you were trying in good faith to make a business but just kept losing money??? see your tax attorney as this advice is worth what you paid for it.

9

While it pains me to admit this, I am indeed a tax accountant. On an even sadder note, I seem to be a much better tax accountant than triathlete. The situation you guys describe is common. Some guy saying he figured out a way to get otherwise “personal” expenditures deductible as business expenses. Sounds too good to be true, right? It is…

Under IRC Sec. 183, the tax law dictates that any activities “not engaged in for profit” may NOT generate a loss. These are commonly referred to as the “hobby loss” rules. I know what you are going to say. Here’s where you get defensive and insist, “Trying to become a professional athlete is NOT a hobby.” You picture hobbies as stamp collecting, bird watching, and the occasional cow tip. Well, the IRS disagrees with you.

The regulations and several decades of case law have determined the factors used to figure out what is a business and what is a hobby. Most damning to triathletes are the following:

  1. Profit Motive. You must be able to show the IRS that you reasonably anticipate being able to produce a profit from your activity. In the case of most triathletes, the relatively meager winnings compared to the astronomical cost of equipment will rather quickly end this argument.

  2. Profit History. This is where you hear the 3 in 5 year safe harbor. The IRS wants to see that you have been profitable. Even showing the profit years doesn’t guarantee you the result you want however, as the IRS often sees through these results as contrived.

  3. Financial Situation. In short, if you have a full-time job paying you $70,000, and in your off-time you are pursuing professional status, the IRS isn’t going to buy it. If you are going to make the case that pro triathlete is your business, it better be the ONLY thing you do.

  4. Level on enjoyment or recreation taken from the activity. Believe it or not, the more you love your side activity, the less likely the IRS is to buy that it is “engaged in for profit.” While no IRS cases have been litigated against triathletes, this factor has killed any number of Amway salesmen, who wrote off all their dinner parties and conferences and shit like that. The IRS held that these guys were pursuing personal activities and deriving personal pleasure, and that made it a hobby.

In summary, there is a LONG case history regarding hobby losses, and it rarely goes well for the taxpayer.

So, after all that, can the average triathlete who wins no prize money deduct his speedos and cliff shots? No, because it is a hobby, and that would generate a LOSS.

OK, well can someone who wins some cash deduct these same costs? Yes, but ONLY TO THE EXTENT OF THE WINNINGS.

Now, here’s the kicker. The income is reported on page 1. The deductions, on the other hand, are “other miscellaneous itemized deductions.” So if you don’t itemize, you’re screwed, but you still have to report the income. And even if you do itemize, the expenses are only deductible to the extent they exceed 2% of your adjusted gross income. So you may not actually reduce your income to zero.

In other words, you’re screwed. Just the way the IRS likes it.

10

You could set it up as a business, even if the ultimate goal is to only advertise. But, you can’t go on losing money for too terribly long, as it can be called a hobby by the IRS. Just ask the women who tried writing off their Mary Kay business… Just pay the money and hire an accountant, as they are the buffer between you and the IRS.

I write off stuff as advertising. I don’t go too much into the red flag items (such as a $5000 bike), but I write off anything that can be lettered. Also, paint jobs count, as well; just remember to letter it.

11

Thanks, thats what I would assume.

I have never been one to play “games” on my taxes. I pay my fair share and go on with live never having to look over my back. Seems like bankrupcy is even a bigger game.

Dave

12

I agree, I have never considered a red flag amount, item.

Dave

13

It just has to be in proportion to what you spend in other areas. It is all “advertising” (henceforth items to be lettered). If one year you spend $10,000 in advertising opposed to $2500 last year and your income wasn’t that much higher, that’s when it could become a problem.

Please note that I am NOT a CPA, nor am I giving tax advice with this post. Ask a CPA if in doubt.

14

get an accountant - I needed help when setting up www.RotorCranks.com

it is worth the investment

basically, you have to make a money from your venture, in order to write off it’s expenses
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