[US only] Bicycle racing as a tax-deductible hobby?

Discussion in 'Road Cycling' started by Gerard Lanois, Feb 8, 2003.

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  1. So, here I am burning away a sunny (65deg) Saturday afternoon doing my taxes while I should be
    out riding.

    The hobby expense tax deduction cropped up in TurboTax, so I at least have the chance to think about
    riding since I'm not actually out riding.

    Does anyone report things like reimbursements from your club (clothing, travel, entry fees,
    equipment) as hobby income so you can deduct these as hobby expenses in order to reduce your overall
    taxable income?

    -Gerard Livin' The $571 Dream
     
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  2. Gerard Lanois wrote:

    > (clothing, travel, entry fees, equipment) as hobby income so you can deduct these as hobby
    > expenses in order to reduce your overall taxable income?

    The US tax codes always confuse me. How can you report an income as an expense???
     
  3. Stewart Fleming <[email protected]> writes:

    > Gerard Lanois wrote:
    >
    > > (clothing, travel, entry fees, equipment) as hobby income so you can deduct these as hobby
    > > expenses in order to reduce your overall taxable income?
    >
    > The US tax codes always confuse me. How can you report an income as an expense???

    You omitted the word "reimbursement" from my original posting.

    Let's say I spend $89.00 on a team jersey and shorts. Then by virtue of racing 12 times during the
    season and doing 8 hours of volunteer work my club reimburses me the $89.00. Suppose my overall net
    taxable income for the year was $13,000. Then I could deduct the $89.00 from $13,000 and thus only
    have to pay the income tax on $12,911.00.

    http://www.irs.gov/pub/irs-pdf/p529.pdf

    "Hobby Expenses You can generally deduct hobby expenses, but only up to the amount of hobby income.
    A hobby is not a business because it is not carried on to make a profit. See Not-for-Profit
    Activities in chapter 1 of Publication 535."

    http://www.irs.gov/pub/irs-pdf/p529.pdf

    "Not-for-Profit Activities If you do not carry on your business or investment activity to make a
    profit, there is a limit on the deductions you can take. You cannot use a loss from the activity to
    offset other income. Activities you do as a hobby, or mainly for sport or recreation, come under
    this limit."

    I read this to say your expenses cannot exceed your income for your so-called hobby. But up to the
    amount of hobby income, these expenses are deductible.

    For those D3 racers trying to live the dream, might this be enough to kick you down several tax
    brackets??? Do these guys get a 1099-MISC?

    -Gerard CPA (not)
     
  4. Gerard Lanois at [email protected] wrote on 2/8/03 5:46 PM:

    > Let's say I spend $89.00 on a team jersey and shorts. Then by virtue of racing 12 times during the
    > season and doing 8 hours of volunteer work my club reimburses me the $89.00. Suppose my overall
    > net taxable income for the year was $13,000. Then I could deduct the $89.00 from $13,000 and thus
    > only have to pay the income tax on $12,911.00.

    Like many things in US tax law, the answer is "Yes you can, but no probably not."

    First, you must include the $89 in your income, so your taxable income would actually be $13,089.

    Second, in order to deduct hobby expenses, you must be able to itemize rather than taking the
    standard deduction. If you cannot do this, your income is still $13,089.

    Assuming that you can itemize, hobby losses are deducted as "miscellaneous itemized deductions"
    which means the deductible amount is reduced by 2% of your adjusted gross income.

    $13,089 * 2% = 262

    $89 - 262 < 0

    So in your example, none the money you spent would be deductible, unless you had other miscellaneous
    deductions (e.g. union dues, work uniforms, tax preparation fees) to put you over the $262 hump.

    There also is a more complicated issue that arises if you are subject to alternative minimum tax,
    but that is beyond the scope of this group.

    HTH Gary Pomeroyq
     
  5. Gerard Lanois wrote:

    > You omitted the word "reimbursement" from my original posting.

    Sorry. Not sure if it changes anything though...

    > Let's say I spend $89.00 on a team jersey and shorts. Then by virtue of racing 12 times during the
    > season and doing 8 hours of volunteer work my club reimburses me the $89.00. Suppose my overall
    > net taxable income for the year was $13,000. Then I could deduct the $89.00 from $13,000 and thus
    > only have to pay the income tax on $12,911.00.

    So you spent the $89.00. Expense. You got the $89.00 back. Income. You have the jersey and shorts.
    The club has you for 12 races and volunteer work.

    I am missing the part where you could deduct this $89.00 from your income. If no $89.00 changed
    hands, would you still be able to deduct it? So if you bartered volunteer work for jersey and
    shorts, your overall taxable income would still be $13,000 and you would be worse off than if you go
    through this expense/reimbursement scheme?

    I'm not saying you SHOULDN"T or CAN'T do this - I'm just genuinely interested in the mechanics of
    what makes this possible. STF
     
  6. Stewart Fleming <[email protected]> writes:

    > Gerard Lanois wrote:
    >
    > > You omitted the word "reimbursement" from my original posting.
    >
    > Sorry. Not sure if it changes anything though...
    >
    > > Let's say I spend $89.00 on a team jersey and shorts. Then by virtue of racing 12 times during
    > > the season and doing 8 hours of volunteer work my club reimburses me the $89.00. Suppose my
    > > overall net taxable income for the year was $13,000. Then I could deduct the $89.00 from $13,000
    > > and thus only have to pay the income tax on $12,911.00.
    >
    > So you spent the $89.00. Expense. You got the $89.00 back. Income. You have the jersey and shorts.
    > The club has you for 12 races and volunteer work.
    >
    > I am missing the part where you could deduct this $89.00 from your income. If no $89.00 changed
    > hands, would you still be able to deduct it?

    No.

    > So if you bartered volunteer work for jersey and shorts, your overall taxable income would still
    > be $13,000 and you would be worse off than if you go through this expense/reimbursement scheme?

    Yes, the point being that more of your income would be exposed to taxation.

    As someone else pointed out elsewhere in the thread, the whole $89 isn't deductible, only 2% of $89
    is deductible (sorry, I didn't read the fine print).

    That might not sound like much, but if you're Ross Perot then append a bunch of zeros and you'll
    begin to see why it would be worthwhile to try to find as many deductions as possible.

    > I'm not saying you SHOULDN"T or CAN'T do this - I'm just genuinely interested in the mechanics of
    > what makes this possible. STF

    The IRS considers a hobby to be a "not-for-profit activity", and you can deduct a portion of your
    expenses (not to exceed your income).

    The US tax code is riddled with such so-called "loopholes". Many of these deductions are used as
    election campaign fodder. Others tend to favor corporations (especially ones who are located in
    certain states or election districts represented by certain congressmen). But if you were once blind
    and a widow of a disabled retired railroad employee then you can deduct the interest you paid on the
    portion of your farmland that you didn't rent so long as it was not titled as an asset of an
    offshore trust and then only the depreciated portion carried forward from the previous year. And
    there is a separate form you have to fill when you're in this situation.

    -Gerard
     
  7. Gary German

    Gary German Guest

    "Gerard Lanois" <[email protected]> wrote in message news:[email protected]...
    >
    > So, here I am burning away a sunny (65deg) Saturday afternoon doing my taxes while I should be
    > out riding.
    >
    > The hobby expense tax deduction cropped up in TurboTax, so I at least have the chance to think
    > about riding since I'm not actually out riding.
    >
    > Does anyone report things like reimbursements from your club (clothing, travel, entry fees,
    > equipment) as hobby income so you can deduct these as hobby expenses in order to reduce your
    > overall taxable income?
    >
    >
    > -Gerard Livin' The $571 Dream

    If you're a club officer, in a registered non-profit club, it's my understanding that you CAN deduct
    club-related expenses, including the cost of driving to meetings and activities that you lead,
    office supplies you use for club business, etc. It's usually not much, but at tax time, every little
    bit helps. The deductions become part of "charitable contributions".

    GG
     
  8. Gary German wrote:
    >
    > If you're a club officer, in a registered non-profit club, it's my understanding that you CAN
    > deduct club-related expenses, including the cost of driving to meetings and activities that you
    > lead, office supplies you use for club business, etc. It's usually not much, but at tax time,
    > every little bit helps. The deductions become part of "charitable contributions".

    i've been told- "if your club is a registered 501(c)(3) club, then yes. if your club is a
    501(c)(7) then no"

    living in a mecca of usa tax law info, h
     
  9. Jtn

    Jtn Guest

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