Should I form a company for our race team?

[sjs]

My brother and I may purchase the Spec Miata we have rented the last couple weekends to run along with the 510, and I’m wondering if there are any tax reasons to form a partnership, LLC etc. for our race team. If there is a website you can point me to that covers the topic, that would be great. If you have done or researched it yourself and can summarize, I’d appreciate the benefit of your knowledge. Here are a few potentially relevant facts:

I’m single and he’s married (the latter seems to come into play with everything else, so why not this. J )

We are both part owners of an LLC made up of seven equal partners/members. We would like to “advertise” the company on our car and trailer but can’t really ask the other five to help with sponsorship dollars, so that could only be taken from our “draw”. (we are effectively a flow-through where we each take out revenues generated by us after a fixed monthly operating deduction)

The idea would be to form a new company for the race team and capitalize it out-of-pocket with post-tax dollars to purchase the car. We would then like to take some pre-tax dollars from our LLC revenues to pay for signs & graphics, entry fees, etc. I think that’s perfectly legal with the possible exception that the other 5 LLC members will not pay for any of the advertising, but would of course stand to gain from it. At what point is it likely considered a tax dodge rather than legitimate advertising? I am not looking to do anything shady or bring the IRS down on our company, but I believe that advertising in this way has legitimate potential and I’d like to take advantage of any legal tax deductions.

Am I just wasting my time? Is there a “common” approach to this that I should know about? I suspect that many teams are structured to make an “attempt” at generating revenues so they can instead show a loss and deduct that loss as partners for at least a few years. I don’t think we want to go that route if we can just deduct sponsorship $$ from the other company, but we might if it’s the only choice and not considered shady.

 

[NeSX]

Until you form a seperate legal entity for the rental business... you leave both you and your brother exposed to personal liability if sued.

 

[sjs]

Sure, I realize that. I was leaving liability out of the question on purpose. We're not planning to rent the car or engage in other activities of that sort (at least for now) so I don't know if liability is any more of an issue than for other amateur racers. My thought about making it a company may be baseless. I wondered if money from my company used for entry fees and tires might be considered income, which of course would make the exercise meaningless. As a company the team would easily offset that "revenue" with other expenses, or be set up as a NFP. But I really know nothing about it so I thought I'd do a little fishing here.

 

[Tom Larkins]

I would assume you have a CPA doing all of your LLC, I know its a no brainer but you had better get some serious council if you do this. As a S Corp. it was rather simple b/c I use to do that myself as far as advertising as long as I could prove business, but thats not you b/c of the LLC unless you and brother want to form the SCorp outside your LLC. At that point you loose your pre-tax idea, however you have simplified greatly and may off-set other taxable income and be able to race too!