[DavidDupuy]

I wanted to add to what Julie posted and point out a few things about the importance of keeping records even if a racer continues to race as a hobby.

I have been in the private sector and out of the tax preparation part of things for about 7 years so Julie or John please correct me if things have changed.

First, keep records of all expenses related to your racing activities. Entry fees, fuel costs - both for travel and race car, hotels, parts, etc. the easiest way to do this is to do as Julie suggested and maintain a separate checking account for all racing related expenses. Deposit any winnings into that account too. If funds are needed to cover expenses deposit personal funds into this account rather than pay them from your personal account.

Secondly, the last portion of the IRS explanation is important too. You can deduct hobby expenses up to the amount of hobby income reported on your individual tax return. So, if you have a period where you do win some money and report that on your return, then you have a potential deduction of expenses equal to that amount. Hence the recommendation above to keep good records. I say potential deduction as there are several other factors of your tax return that will determine the amount of the actual deduction, if any, since the deduction is part of itemized deductions.

Lastly, as Julie stated, the auditor assigned to your case - and as she stated, many racers report their racing as a business and never have issues - or audits - and others have been audited - is just as important as the detail records you keep. Orderly records help show the auditor you are informed and have the intent of " following the rules". Again, you never know until you are dealing with an agent what will be important to substantiate your position.

Lastly - part 2.....consulting with a CPA - whether or not you use them at tax time - is probably a good idea to discuss how this topic fits into your overall tax situation.