Tax Breaks and Boating

mmcguire2002

mmcguire2002

Active Member
Mar 3, 2008
597
San Pedro, CA
Boat Info
Previous boat - 2003.5 Sea Ray 340 DA
Current boat - 2003 Mikelson 50
Engines
Cummins 480 CE
I was thinking of getting my Captain's license and starting a charter business on the side. That way when I take the guys on weekend boating trips, I can charge them for gas.

The business would never be profitable, so I would think I could write off the gas, slips fees, maintenance, etc.

I will talk to my tax guy about this, but was curious if anyone here has done something similar or has any input.
 
Four Suns said:
You will get audited and nailed to a cross.
Click to expand...

I suspected it may not be that easy, but I do know some people have boats under their company names, etc. I was curious what some of the in's and out's were of these types of setups.
 
I am curious too.... Just got my 50 Ton Masters License this past summer and I'm looking for a tax deduction...:smt024
 
I'm no accountant (but I was only 6 credits shy of an minor in accounting and have run a small business for the past 13 years!) but I believe you can make it work if you are honest about how the boat is used. If you assign percentages to the amounts of personal and business usage, you can write SOME of the expenses off.

A similar situation comes up with the "home office." Always a red flag for the IRS. Let's say you run a legitimate psychology practice out of your living room - that doesn't mean you can deduct ALL of your household expenses (prop taxes, new roof, electric bills, etc.). I have heard of formulas that involve square footage, time spent, etc. Even the old adage, "I entertain clients on my boat" doesn't hold water much anymore (pardon the pun). You literally have to keep logs of who was on the boat, where did you go, what did you do, what was discussed, etc. ESP in this economic climate, the government, just like each of us, is looking for every dollar!

Hate to give you the boilerplate disclaimer, but "consult a tax advisor" before you get in trouble with the IRS!
 
Well.. "consult a tax adviser" is your best bet. But make sure they will sign their name to whatever they tell you.

My boat is in a corporation (C corp) but not for a tax deduction. That corporation's business never sees my tax return nor will it ever.

The problem you'll run into is this. It's not like a home office deduction. It's a business. And so if you have people paying you market rates for chartering your boat, you sure can write off the expenses against the income. However... when you use it yourself, you need to pay the corporation what "fair market" is on using the boat. If you don't, then it's income to you personally and that has to show up on your tax return.

It's like company cars are now... If a big company leases a car for you to use, you better put the personal use side of it down as income....

My 2 cents... I just avoid the whole issue. Not worth it.
 
Hmm... actually it probably is like a home office deduction. I think you can't do ANY personal use in a "home office" any more and it has to be a separate structure 100% dedicated to a "business"

I have a dedicated home office and conference room for my businesses but I still don't touch the home office deduction thing...

My lawyer always told me... "Don't f*ck with the IRS"
 
Four Suns said:
My boat is in a corporation (C corp) but not for a tax deduction. That corporation's business never sees my tax return nor will it ever.
Click to expand...

Gary - would you mind sharing why your boat is under a corporation? Just curious if there is benefit to it, or what the reasoning would be behind it.
 
Law suit protection, estate planning, etc.
 
Don't worry - Nobama and his ilk are already aware of it and working very hard to devise ways to get rid of any and all ways to protect that which we work so hard to attain - for the good of the State.
 
rondds said:
I'm no accountant (but I was only 6 credits shy of an minor in accounting and have run a small business for the past 13 years!) but I believe you can make it work if you are honest about how the boat is used. If you assign percentages to the amounts of personal and business usage, you can write SOME of the expenses off.

A similar situation comes up with the "home office." Always a red flag for the IRS. Let's say you run a legitimate psychology practice out of your living room - that doesn't mean you can deduct ALL of your household expenses (prop taxes, new roof, electric bills, etc.). I have heard of formulas that involve square footage, time spent, etc. Even the old adage, "I entertain clients on my boat" doesn't hold water much anymore (pardon the pun). You literally have to keep logs of who was on the boat, where did you go, what did you do, what was discussed, etc. ESP in this economic climate, the government, just like each of us, is looking for every dollar!

Hate to give you the boilerplate disclaimer, but "consult a tax advisor" before you get in trouble with the IRS!
Click to expand...
As far as the home office thing goes the Exclusive Use test must be met. Things aren't like they used to be. See attached IRS publication http://www.irs.gov/pub/irs-pdf/p587.pdf
 
Four Suns said:
My lawyer always told me... "Don't f*ck with the IRS"
Click to expand...

Isn't that the truth. I just got a bill for $1300 saying there was discrepancy on our personal returns. I looked at my returns and the IRS was clearly mistaken...there was something that they missed.

Long story short, I wrote a check for $1300 because I also own my own business and I am not about to start raising any red flags. I could argue but I'd never win and it would create more problems than it would solve.
.
 
Started a small mechanical repair business out of my home. H&R Block helped me set things up. Each year I went back to H&R for tax service and had a different accountant. Went on for five years and I never showed a profit. IRS showed up on my door step. Told me I was running a business as a hobby. Had I showed a profit on the third year I would have been ok. Had to scrape up $11k to the feds, send in amended tax returns to the State. Be Careful. ...Ron
 
What BonBini said! I floated the idea past a tax accountant who said the same: If you don't really make a profit, they'll go back and call it a hobby. At that point you would have been better off without the deductions.

We have a few hobbies that produce income. We write off just enough expenses to zero out the income, but that's where we stop.

I would suggest that you take your plan to your tax accountant and see what he says.
 
BonBini said:
Started a small mechanical repair business out of my home. H&R Block [emp added -FC3] helped me set things up.
Click to expand...

Get a REAL tax advisor and accountant to handle your business and tax affairs. The money you save by going cheap will cost you in the long run. When I was operating my consultancy, I hired a very well-recommended attorney to setup up the business and a also well recommended accountant to handle the books. Never regretted that decision.

Best regards,
Frank
 
Four Suns said:
Hmm... actually it probably is like a home office deduction. I think you can't do ANY personal use in a "home office" any more and it has to be a separate structure 100% dedicated to a "business"

I have a dedicated home office and conference room for my businesses but I still don't touch the home office deduction thing...

My lawyer always told me... "Don't f*ck with the IRS"
Click to expand...

Hopefully, my CPA knows what he's talking about... he gives me a small deduction for my home office, couldn't tell you how much offhand but it's calculated based on sf. He stated as long as it's a separate office, wholly dedicated to business that it's OK. FWIW, we avoid anything- even legal- that he says "raises flags". Agree- it ain't worth it...
 
I am an accountant and may I suggest that unless you plan on a legitimate charter business don't bother. All you are doing is raising a red flag.
 
Ditto to JAG. I'm a CPA too.

There are certain rules on when a business is deemed a hobby. It may be no profit after 5yrs, I can't recall.

A few other things to consider:

1 - You, not your tax accountant or lawyer, is responsible/will be held accountable for your tax return. A huge misconception is about who signs your returns. It does not matter who signs your returns, you are responsible
2 - no accountant or lawyer with any ethics will help you evade taxes. However there are several legitimate ways to reduce your tax burden, which a professional can help you identify
3 - there are certain advantages/disadvantages to setting up a C-Corp, S-Corp, LLC, sole owner, etc... Seek advice

Your Character and Integrity is much more important that $$
 
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