Sorry. I haven't been on for a bit because I was able to actually do some pulling last week. Whether right or wrong if you look at the majority of pullers in the higher classes they all own their own businesses. It could be farming or construction or even dentistry and I'm sure they write the majority of their parts and maintenance off as "business expenses."
I, however, don't own a small business so I had to create one for pulling. I spoke with several tax attorneys, CPAs, and business attorneys. It cost me a little bit of money, probably $3k total but I was able to feel confident in my approach and had legal and tax representation in case something did go wrong.
First, you need to look at the nine factors the IRS looks at to determine if you can claim it as a legitimate business or is it a hobby. In making the distinction between a hobby or business activity, take into account all facts and circumstances with respect to the activity. A hobby activity is done mainly for recreation or pleasure. No one factor alone is decisive. You must generally consider these factors in determining whether an activity is a business engaged in making a profit:
-Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.
-Whether the time and effort you put into the activity indicate you intend to make it profitable.
-Whether you depend on income from the activity for your livelihood.
-Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
-Whether you change your methods of operation in an attempt to improve profitability.
-Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
-Whether you were successful in making a profit in similar activities in the past.
-Whether the activity makes a profit in some years and how much profit it makes.
-Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
I determined that I could legitimately claim it as a business as the intent was to make a profit eventually. I stress eventually. I know some people say you have to make a profit xx out of xxx years but I have worked for several start-ups that didn't make a profit for 13-15 years and had losses totaling $200MM+. Look at Amazon. It operated at a loss for 20+ years.
I developed a formal and comprehensive business plan addressing the 9 factors above, formed a board of directors of experts in small business, developed an economic model and financial projections, created a separate bank account, filed with the state and local chamber of commerce, tracked every single $ in and out of the business with receipts and formal accounting records, held board meetings and kept formal board minutes. I formed a single member LLC, and obtained financing from yours truly in the form of a business line of credit in exchange 100% equity in the company. Every single asset and entry form and winnings check is in the name of the business with the Federal Tax ID of the business....etc. There are more steps to it but those are the basics.
Then at the end of the year I file my individual taxes as I would usually do and report all my income and expenses from the business since it's a single member LLC. I included any sponsorship, winnings, parts sold...etc. as income and any fees, costs, and depreciation of assets as losses. If at the end of the year my losses were more than my income I was able to reduce my individual tax burden. Whatever, I received as a tax deduction on my individual taxes in the form of a refund as a result of business losses, I put it right back into the business account.
I know I won't actually turn a profit for a few years because I will be depreciating the cost of the pulling vehicle and support vehicles...etc. for about 6 years total but there is a plan and a reasonable expectation I will make a year over year profit with a full return of costs over a longer time period.
It's a lot of work but it's a business and it's supposed to take work but it's worth it to operate a business I love and eventually make a profit. If you're interested in forming a business I would definitely contact a CPA and Tax Attorney. You don't need the most expensive ones either. In fact, my local H&R Block does my taxes but he also has 30 years of experience in small business tax and only had two clients audited with no findings so I know the IRS is confident in his ability to file legitimate businesses.