Jennifer Woods is 32 years old and for the last six years has been employed as a

Question

Jennifer Woods is 32 years old and for the last six years has been employed as a manager by Ski USA, a distributor of ski equipment and boots. In the past two years as a professional bicycle racer she has participated in approximately 50 races annually. Although she has won some of them, Jennifer has incurred annual expenses that far exceed her annual income from racing. Jennifer trains extensively on a daily basis; she has sponsors who have provided her with the bicycles, clothing, and occasionally, entry fees required for participation in these races. Otherwise she pays her own expenses which include the costs of bicycle repairs, transportation, lodging, and most entry fees. During racing season, she works a lighter schedule at Ski USA and also utilizes her vacation time. The National Bike Racing Association ranked Jennifer in two events – the dual slalom and downhill races – for which she wears a full-face helmet, chest protector, knee protection, elbow pads, goggles, and heavy duty clothing.

Jennifer wants to know if she was correct in deducting her expenses as a deduction for AGI against the winnings from races in which she has won prize money and the sponsorship income she has received.

Using the format for communicating research findings covered in the sample brief, submit a brief memorandum addressed to Jennifer, in which you report your findings. Identify any relevant statutory, regulatory, and judicial authorities, and discuss how these authorities affect your conclusion concerning the tax treatment of Jennifer’s bicycle racing expenses.

Can anyone help me find any primary or official sources to help me with this question? Does anyone know the pertinent code of federal regulation that would address this? Also, any treasury or court cases? Any help would be grealty appreciated to at least assist me in getting started.

Explanation / Answer

Answer: BUSINESS OR A HOBBY :
Is Your Hobby a For-Profit Endeavor?

FS-2008-23, June 2008
The Internal Revenue Service reminds taxpayers to follow appropriate guidelines when determining whether an activity is engaged in for profit, such as a business or investment activity, or is engaged in as a hobby.

Internal Revenue Code Section 183 (Activities Not Engaged in for Profit) limits deductions that can be claimed when an activity is not engaged in for profit. IRC 183 is sometimes referred to as the “hobby loss rule.”

http://www.irs.gov/uac/Is-Your-Hobby-a-F...

If your activity is not carried on for profit, allowable deductions cannot exceed the gross receipts for the activity.


Self employed independent contractor using your daily written receipt book records to report your gross income on the schedule C or CEZ along with the SE to determine your NET PROFIT or LOSS from your business income during the tax year for this purpose.
SE your social security medicare tax amounts that you would OWE on your NET profit amount that would end up the page 1 line 12 from the schedule C and any SE tax owed page 2 line 56 and page 1 line 27 Deductible part of self employment tax attach schedule SE line 27 $$$ amount.
Starting, Operating, or Closing a Business
Starting a Business
Starting a business could be exciting. If you're considering starting a business, start here. This section provides information on everything from a checklist for a new business, to selecting a business structure, and more.

www.irs.gov/Businesses/Small-Businesse...

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