topic Racecar driver- hobby vs business? in Get your taxes done using TurboTax

Racecar driver- hobby vs business?

charlesellis1001 — Wed, 05 Jun 2019 21:17:28 GMT

What is the difference at how much of expenses that I can deduct for being a race car driver and racing? I am racing to make money and I do receive a 1099 from the track that I race at. So It seems to me it is more like a business. However, if I classify it as a business and I do not turn a profit in the upcoming years and the IRS makes me change classification back to a hobby- will I have to pay anything back for the years that I classified it as a Business? Does it change how much you can write off whether racing is classified as a business vs. a hobby? 2017 was my first year racing.

The difference between a hobby and a business for the IRS...

Phillip1 — Wed, 05 Jun 2019 21:17:30 GMT

The difference between a hobby and a business for the IRS is how you conduct your operations and activities. For example, if your expenses are exceeding your income from racing, you are not tracking racing related finances, and you are not making any changes to how you manage your racing activity, the IRS will likely try and classify racing as a hobby (because you do it regardless of whether you are making money or not).

Conversely, if you manage your racing related finances, and make (and can document) prudent business decisions to make the racing activity profitable, the IRS will be far more likely to treat the activity as a business.

There is a risk with racing, the IRS will try and treat enjoyable activities as hobbies because they are fun. Documentation is the only thing that can prove them other wise.

If the IRS reclassifies a business as a hobby, they will disallow losses and possible make you repay a lot of back tax, penalties, and interest.

Thank you so much! So if it is classified as a hobby, I...

charlesellis1001 — Wed, 05 Jun 2019 21:17:31 GMT

Thank you so much! So if it is classified as a hobby, I think I read some where that you can only write off as much as you made- Do you know if this is correct?