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Racing Sponsorship

2009-06-30 by

Today TaxMama hears from Craig in California with this question. “I’m a kart driver, who is going to be doing a lot of racing in Europe in 2010. My budget and sponsorship money that I’m expecting to receive is in the 5 to 6 digits. Do I have to pay taxes on the sponsorship money I receive from companies or corporations? I receive it only once, and it covers the whole year. How does that work?”

Dear Craig,

Congratulations! How wonderful for you that you were able to raise the money to cover your expenses for a whole year.

Basically, sponsorship money is for advertising rights. Your sponsors want to see their logos all over your uniform and/or vehicles. It’s income. Naturally, you have to pay tax on it.

However, first you get to deduct all your expenses. For instance, all the maintenance and tires and parts on the vehicle that get expended with each race. Your staff, if you have permanent American staff, should be on payroll. If you pick up local staff, keep meticulous records about how much you pay them – and the dates. You will need to convert the local currency to US dollars for tax purposes. There are online tools you can use, as long as you have the dates – or an average conversion rate for the year – like OANDA – http://www.oanda.com/

Keep track of all your travel and meals via a log that spells out just where you are each day. By tracking the dates, you may be able to take advantage of per diem rates for hotels and meals that might turn out to be higher than what you actually spent. Be sure to track meals separately, since only 50% of meals dollars are deductible.

Track all the tips and other cash expenses you incur. Don’t forget transportation, shuttles, cabs, etc. If you track every dime, date and location of your trip, by the time the year ends, you won’t be showing much profit. You only pay taxes on the profit – not the full sponsorship money. Note: The Tax MiniMiser in The 100% Home-Based Business Tax Solution would be perfect for you.

Incidentally, since all the expenses are in 2010, see if they can hold off paying you the bulk of the amount until after January 1, 2010. In 2009, collect only what you will be spending during 2009 to set up the car and the races.

Good luck in your races!

And remember, you can find answers to all kinds of questions about racing income and other tax issues, free. Where? Where else? At TaxMama.com

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# | Posted in Tax Quips | Comments » (4)

All Comments

Kip G. De Boer Says:
June 30th, 2009 at 09:15 am

Perhaps, since Craig will be racing in Europe, form 2555 will come into play assuming he stays over there for the whole year.

Thomas Avery Blair, EA Says:
June 30th, 2009 at 03:51 pm

I might add that Craig might be smart to hire himself a daily money manager/accountant/EA to assist him since he will likely be travellng back and forth over so many national boundaries and taxation jurisdictions.

Some time ago I helped a taxpayer with a similar effort…he was simply too busy, inexperienced and too-jet lagged to handle the bookkeeping and record keeping (including payroll and tax payments) chores. That person and his wife spent far more for penalties and interest than it would have otherwise cost him to have a tax pro/daily money manager…twice his vehicles were confiscated in Europe for failure to promptly report and pay taxes due…that alone nearly put him out of business. He also ran the risk of having to repay advances to some advertizer/benefactors/sponsors due to his failure to perform during the property confiscations/impounding events by tax authorities.

At least food for thought, is it not?

Respectfully submitted,

Thomas Avery Blair

Bonney Says:
June 30th, 2009 at 03:56 pm

What an exciting job. Every little boy wants to grow up to me a professional driver of go carts, mine included. You must be pretty good to do this professionally. What ever you do keep weekly journals Expense reports of some kind in detail and a envelope for all your receipts. You will pay taxes on your profit as Tax Mama explained. All the traveling you do is expensed. Even Cabs keep a note book in your pocket in case you have to write out a receipt and get the receipient to sign it for a receipt. And I believe if you have a celebration party the whole thing is expensed. Take care and be careful and safe.

Craig Francis Says:
June 30th, 2009 at 05:58 pm

Thank you TaxMama. That helped to answer a lot of questions. Just another question I have, that I forgot to mention. I have to give a majority of the sponsorship money to the team. They take care of everything, with the chassis, motors, tires, living, food, and travel inside of Europe. The traveling back and forth is my responsibility. I get to keep a certain amount from my sponsorship as my own income, to pay for my necessities. I'm assuming they are taking care of the taxes on that part of the sponsorship that is payed to them, or am I wrong?

Kip, I don't expect to be staying there the whole year. But who knows, something can come up which would force that. I'll definitely look into that for my personal knowledge, thanks!

Thomas, that might not be a bad idea. Actually, that sounds more like not a might, but an excellent idea. Just, to have the money to pay for that person as well. It is food for thought though. Thank you!

Bonney, it is very exciting. I was, and probably still am that little boy. I just turned 19 yesterday, June 29. Since I first started watching NASCAR at age of 3, I grew up wanting to become a race car driver. My dad helped fuel it by showing me and taking me to all the different forms of racing. Became a bit of a auto tech person in high school, dissembling/rebuilding several v8 motors in my auto shop class. If your son wants to become a professional race car driver, and sets a determination to make things happen, he can achieve it. If he has questions, I'll gladly help him and try to set him in the right direction. Thank you for the advice as well Bonney! I will do my best to remember all that throughout the year.

Thank you everyone for answering my questions and for your advice!