Just curious. Does anyone know if you can claim that being a Triathlete can be a small business? I was talking to a co-worker about the bike I am looking to buy and when I mentioned the cost he said that I should create my own small business for triathlon as you can actually make money at it (if you are good enough) and the costs could be tax write offs. I thought this would be a good place to ask as any.
Go for it. You can do your speed workouts around the inside perimeter of the federal pen.
It was actually a serious question. What would be illegal about it? Athletes compete for money, just about all events that I have gone to have some sort of “prize money”. If there is a law against this that is fine, but I am not aware of any which is why I ask. It is a rather expensive “hobby” to not ask these types of honest questions.
The IRS is a bit smarter than than that. You can only deduct the losses against your triathlon income, not other income.
You can. At some point you may have to prove that you actually are on your way to making money at it. I have a friend who’s been an elite runner for quite a few years, makes small amounts here and there, but considering costs of traveling to nationals, etc, always writes off the losses. She’s never been audited. A teammate of hers has been racing only a couple of years, wins less, and got audited right away.
It seems to be harder to make the case in tri since we (stupidly in my opinion) restrict purses to the “pros”. Another friend is a top AGer (qualifies as a pro, just hasn’t gotten a card) looked into it and decided against for fear of bringing undue taxman attention. I don’t know how well founded her concerns are, but I’d be worried about writing off a $5000 tri bike when the best I can hope to win is $100 at a tri.
It’s the difference between a business and a hobby. This should help you understand the difference.
http://ipowerweb.com/iboost/manage/business/your_business/40004.htm
The IRS is on the lookout for people trying to “write off” hobbies. I’m not an accountant, but one rule of thumb I’ve often heard is that a red flag for the IRS is a business that continually loses money. Which hobbies tend to do. So if you buy a $5000 bike, spend $5000 in travel and race fees but only generate $1000 in winnings, it will probably be a red flag. The idea is that it is not normal for someone to keep a losing money venture going.
Look at the IRS site under hobby business and you’ll get their guide on the issues associated with it.
Very interesting article. Thanks for sending me the link.
How are sponsorships seen? If I were to get sponsors for me to compete, that would be income right? I don’t know to the amount of sponsors I would be able to get right at this point, but that would show some income. However, at this point I don’t see myself ever being an eliete, but in the top of my age group so it isn’t like I see a lot of “prize money” coming in any time soon so your article has a point (hobby vs. business).
Maybe this is why many who have done triahlon for years and also desire to continue to do so get into coaching, etc so that they have an easier time with “proving” that it is an actual business (let alone to make some money on the side =O)
Every winter I coach a group of newbie runners through a winter marathon. Part of the program is me going to said marathon, and trotting around with each of them to pass some time. I deduct that travel expense against the income generated from running the program since the travel is directly related.
On the flip side, I wouldn’t try deducting a bike until I was generating enough income from cycling related activities to warrant the purchase of such an expensive bike. If I were generating even as little as $10,000-15,000/yr on cycling related coaching, then I might try it. But alas, that’s not the case.
Stick to deducting costs related directly do income and you should be fine.
With all of that said, you’ve heard only anecdotal evidence from me. My little n=1 experience. I’m no tax attorney nor a CPA.
Unless you’re really fast you won’t have any prize winnings to declare. Like others have mentioned without income the IRS won’t look favorably on you claiming expenses for what is clearly a hobby type sport (for most of us).
I’m not saying this is a good idea but if you could find a product to sell at expos at races that MIGHT be a little easier to get by with.
At least you’d have some gross income to include on your “C” schedule. Over all you’d realize a net loss most likely due to all the expense of traveling. You might at least get away with this for a couple or three years.
At the same time you consider strategies for reducing/differing cost of participation in the sport it is also worth considering your motvies for participation in the sport.
If you’re an age grouper the reality is that you are a recreational athlete. You aren’t paying the mortgage and feeding the kids with money from triathlon sponsorships. If you are able to then it’s is certainly a different matter.
As soon as you make a sponsorship deal with someone you have a significant obligation to then to make good on your representations and promises. As soon as you are sponsored, the sport is a job, it’s work. That may change the tenor of participation for many people. You’ll have to e-mail and interact with sponsors, maintain a website, manage press releases and try to generate positive media and publicity. That’s work.
Your new bike would be a capital expenditure which, at least in Canada, is not tax deductible.
YES YOU CAN! call the IRS if you’d like and discuss exactly that. i do it currently (and i also own another small self employed business). rule is, if you make more than I believe it’s $600 per year doing something, it is NOT a hobby, and you have to (legally) pay taxes on it. in your case this would be a self-employed business.
so if you’re making more money than that per year from either sponsorships or prize winnings (either pro or amateur) you can consider it a business and write off your expenses…bikes, hotels, entry fees, etc. it’s not like you’re getting reimbursed for these items, you just have your taxable income reduced by that amount (ie your expenses total $5k, then your taxable income is reduced by $5k).
the main kicker is that you MUST make a profit 2 out of 5 years (or you’ll owe back taxes). that means 3 of the years you can take a ‘business loss’, so long as at least 2 of the years you make some sort of profit (where profit exceeds expenses).
you can call the IRS toll free to discuss, or also any tax advisor (or HR Block etc) can explain it to you, just tell them your exact question.
this is a business just like any other. just like any other business you do not have to be good at it, you don’t have to have a website, you don’t have to have a storefront.
I know some hobby class racecar drivers that advertise their businesses on the cars and write off such things as travel expenses, tires, decaling the car as business expenses. They don’t dare write off the capital expenses like the car itself.
You might be able to do this if you own a business, can use triathon to market you business and keep your write-offs to operating expenses like travel, race fees and costs to advertise the business (decals, trisuit, etc.). If you got greedy and wrote off a $5000 bike to advertise your law firm or whatever, that might raise an eyebrow.
I would strongly advise you to consult a tax **professional **before doing this. Much of the advice I have read in these responses is incorrect.
Also consider that if you are audited by a state tax auditor they are likely to review your purchases to see if sales or use tax was paid if applicable in your state of residence.
i would think you should be okay so long as you depreciate the bike correctly (like you would a computer, a machine, new carpeting etc for a regular business), since it’s critical to being able to run the business
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I would strongly advise you to consult a tax **professional **before doing this. Much of the advice I have read in these responses is incorrect.
x2.
I am a tax professional, and most of the comments in this thread are WRONG.
Start here:
IRS Summertime Tax Tip 2007-13
Fishing, Gardening, Golf, Sewing, Woodworking, Horsemanship, Scrap Booking, Stamp and Coin Collecting, etc.
The IRS isn’t trying to spoil your fun but if your favorite activity makes a profit every year or so, there may be tax implications that surprise you.
What is a hobby? Hobbies, also called not-for-profit activities, are those activities that are not pursued for profit. What is a business? Generally, your activity is considered a business if it is carried on with the reasonable expectation of earning a profit.
If you are not sure whether you are running a business or simply enjoying a hobby, here are some of the factors you should consider: Do you run the activity in a businesslike manner? Does the time and effort you put into the activity indicate an intention to make a profit? Do you depend on income from the activity? If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business? Have you changed methods of operation to improve profitability? Do you or your advisors have the knowledge needed to carry on the activity as a successful business? Have you made a profit in similar activities in the past? Does the activity make a profit in some years? Can you expect to make a profit in the future from the appreciation of assets used in the activity?
An activity is usually considered a business if it makes a profit during at least three of the last five tax years, including the current year.
An exception is breeding, showing, training or racing horses. Such activity is presumed to be a business if it makes a profit during at least two of the last seven years.
If you are conducting a trade or business you may deduct your ordinary and necessary expenses. An ordinary expense is an expense that is common and accepted in your trade or business. A necessary expense is one that is appropriate for your business.
Losses from a not-for-profit activity (hobby) may not be used to offset other income. It is possible to claim some deductions for hobby activities as itemized deductions on your Form 1040 income tax return. However, there are special rules and limits to the deductions you can claim, and those deductions may not exceed the gross income from your hobby.
Still confused? More information is available at IRS.gov. A good resource is Publication 535, Business Expenses, found on the web site or by calling 800-TAX-FORM (800-829-3676).
FYI - the 3 out of the last 5 years rule is only a safe-harbor, not a brightline test. Failure to earn a profit for 3 of 5 years does not disqualify the enterprise from being a business.
Business vs. hobby depends on all facts and circumstances. Do not depend on advice you receive over the internet. Talk to your tax advisor.
Good luck
Andy
absolutely, it is do-able, so long as you’re attempting to legitimately make a profit like a business (typically a pro triathlete making earnings, or someone pro or non who has obtained financial sponsorship). doing it just to get a tax write off might land you in hot water if you’re bs-ing it! best advice is call the IRS/tax pro
I am a part time coach and was just recently audited. The IRS is smart. Try it but you will/ may get caught. My agent was very nice and I had only a few issues. You can only deduct up to what you bring in.
S