Can I use my car as a tax write off?

[Captain Mark]

Let's say I own a business.

Can I use my car to advertise my business? I am talking as a race car.

Do I have to have a sign with my business name on it, or something like that on the car, or trailer?

If this is possible, then can I write off the truck and trailer also?

Is anyone else here doing this?

 

[John Larkin]

Ya know, Lance Young would probably be a good one to talk to being he's a CPA. Mile Hi GN is his nick. I owe him a beer or 10 also.

The write off of expenses could be considered a legitimate deduction but percentages of it's use for business versus personal use would have to calculated and well documented. If you write the car down or however you choose to do it, when you ultimately sell it, you have to show any profit you made as income. Say you write the car down to "0" value over 5 years; when you sell it, the total sale price is considered income since there is no expense now to offset it. If you use the car only as an advertising medium, then you could probably write off your direct expenses as they occur, again well documented.

Also remember the intent of a business is to make a profit. If you run in the red for too long trying to legitimize your hobby it will become questionable.

There are more informed people than me out there but that's my 2 cents worth.

 

[Ken Cunningham]

I'm sure that all of the major sponsers you see in Nascar, NHRA, etc are taking full write offs for their sponsorships. That includes tires, trailers, entry fees, the whole nine yards. I see no reason that you couldn't also take a deduction under Code Section 162: "There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business..." The IRS's only avenue of attack will be the vague 'ordinary and necessary' standard. Tying promotional expenses to revenue is not necessary (nor even possible in most cases), but you have to be prepared to defend your advertising deduction as ordinary and necessary under your particular circumstances.

Last Thursday I saw an off-road truck being trailered south, probably to Mexico for an off-road race. The owner-sponser was a local CPA, prominently displayed. I'm certain that owner considered his expenses as deductible business expense.

They're 'above-the-line' expenses, too! That means deductible from adjusted gross income, lowers your self-employment tax.

 

[jmidolo]

If that were the case, I'm sure Scott Simpson woulda been doing it already with his GN with his company, "Headgaskets Unlimited"

 

[Captain Mark]

Thanks boys.

 

[GNSCOTT]

I was told by my accountant that unless you own an shop, the only thing you can write off legally is the cost of the actual advertisement, ie the cost to put the name on the car (decal, paint) and he said that was a bad idea because it will put a red flag on your return. In pro racing, the sponsers are not paying for the car, they are paying for the add space.

 

[Ken Cunningham]

Originally posted by GNSCOTT
In pro racing, the sponsers are not paying for the car, they are paying for the ad space.

Is John Force paying for his Mustang? (Havoline, et al. are) If you have a lot of money riding on this question, I would get a second opinion.

 

[GNSCOTT]

Is John Force paying for his Mustang? (Havoline, et al. are) If you have a lot of money riding on this question, I would get a second opinion.

Havoline is not directly paying for the race car, they are paying for add space. Obviously yes, the money they pay for sponsership does pay for the car, but thats not how it works. Not all of that money in all cases goes to pay for the car, some can go to pay salaries including driver. If you were able to do that, every small business owner would call their 2nd car a race car and write it off.

 

[Ken Cunningham]

Code section 162 is the same for the smallest taxpayer as it is for the biggest. Havolene obviously has a fairly direct nexus between their NHRA sponsorship and their business of selling oil. But the Code does not specify that your advertising expenses have to be smart. It is not a black and white standard, but depends on that vague term "ordinary and necessary." I don't interpret that too strictly, nor does Goodyear [is a blimp 'ordinary'?] nor does Winston [is a major racing circuit 'necessary'?] Ultimately it depends on your own appetite for risk and how well you can present your advertising as ordinary and necessary. A little sticker on a car that you run 4x a year during grudge drags is not going to support your deduction of $4,000 in turbo, slicks, THDP, etc. But a little planning, a little creative use of advertising, and I could see deducting that for one of my clients.

 

[GNSCOTT]

Ken, like most small businesses that don't want the IRS looking too hard at their returns, would you say the move would be worth doing? I know you can get real creative on alot of stuff for many years, but its that 1 time you get caught and then they go back however many years and research your whole business that scares me.

 

[turbosam6]

You need to talk to an accountant or cpa.

Not only can you write it off, you don't even have to own a business to do it. I was talking to some customers of mine who have a dragster, and I jokingly mentioned that I wished I could write off all the money I spent on my car. They told me that you can, and they do theirs, but theres stipulations. Something to do with not doing it every year. They said they saved enough money by doing this that they got the car painted! Like $3000! In one year! I'm going to talk to my business cpa and see how to do it.

 

[Ken Cunningham]

Originally posted by GNSCOTT
Ken, like most small businesses that don't want the IRS looking too hard at their returns, would you say the move would be worth doing?

Depends. It's not for everyone. Why don't most small businesses want the IRS looking at their returns? If this is code-speak for off-the-books receipts (read "under the table") or deductions for blatantly personal expenses, than that doesn't match the type of my small business clients. A business with this type of stuff going on has got bigger problems than grey area advertising expenses. Any audit is a PITA, of course. But I've conducted my clients through them, and you know what? Auditors are people too. Usually reasonable and understanding of the rigors of running a small business.

Originally posted by GNSCOTT
I know you can get real creative on alot of stuff for many years, but its that 1 time you get caught and then they go back however many years and research your whole business that scares me.

Absent a finding of fraud (see off-the-books receipts, above) the statute of limitations will prevent the IRS from going back more than 3 years. Since there is 1-2 lag time before any return is audited, that really only means that 1 year is still open beyond the year already under audit.

If my client doesn't want to risk it, then I wouldn't push the issue. I do have clients that believe that our gov't is worth every penny and more and don't mind paying their fair share PLUS SOME. That's OK with me. Other clients don't mind walking a little bit on the wild side. My job is to point out the risks and also point out where the rocks are just under the surface so they can walk on water, if they wish.

 

[GNSCOTT]

Very interesting. I know 100% legit I haven't had to pay taxes on my business in the first 2 years (told me to have $7k saved by April though). I already write off my Dodge as a second work vehicle, and of course my 24' enclosed is a work storage trailer, and both are used if my primary work truck is in for service or down for any reason, so I write off a good amount. My accountant also told me its a bad idea to write off part of my house even though 1 bedroom is an office because of red flags. Everything I write off is legit (legally) but i'd just hate to have to explain everything to an IRS agent.

 

[Ken Cunningham]

Originally posted by turbosam6
You need to talk to an accountant or cpa.

Not only can you write it off, you don't even have to own a business to do it. I was talking to some customers of mine who have a dragster, and I jokingly mentioned that I wished I could write off all the money I spent on my car. They told me that you can, and they do theirs, but theres stipulations. Something to do with not doing it every year. They said they saved enough money by doing this that they got the car painted! Like $3000! In one year! I'm going to talk to my business cpa and see how to do it.

It is possible to consider your drag racing to BE your business (instead of advertising your separate, unrelated, business). That is a whole 'nother kettle of fish. The IRS has an extensive set of well-developed rules to differentiate your 'business' from your 'hobby'. I think that's what your customer was referring to. Unless you make money at it (I mean after all expenses), and report that money as business receipts, there is going to be an uphill battle to convince the IRS that you have a valid business. There is a safe-harbor rule that allow the presumption that you are in it for profit if you have a profit for 3 years out of 5 (IRC 183(d)). That would be hard for most racers to do, but with a little planning, I would suggest my race-team-client to bundle their expenses into only 2 years each 5. Make modest profits in 3 years, huge losses in 2.

Again, it's not for everyone!

 

[Freedster]

Another thought

I'm not a CPA, but I did take a Tax Accounting class in college. Take information with the appropriate number of grains of salt.

If you are the creative type, you could start a business selling parts and then use your car as a prototyping platform for the parts you were developing. If you were, say, selling an intake system, you could write off all of the expense of developing that intake system. Likewise, if you were, say, selling an adapter to connect stock headers to a particular model of turbo, then the expense of the turbo could theoretically be justified since it was needed to develop the product. If you were reselling something (like fuel pumps), then the expense of one of them as a "demo unit" could probably be justified and written off too.

Now, in order to make this fly, you would actually have to make some effort to sell your products. This could be something as simple as putting up a website to sell your wares, and then putting the web address of your business on the car (possibly writing off the adspace too). You could also advertise here.

- Freed