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 – https://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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