Tax time - "deduct" my boat?

berth control

berth control

New Member
Nov 16, 2008
886
Saugatuck, MI
Boat Info
1985 270 Sundancer
Engines
3.7 liter Mercruisers
I have a small business and expensed my boat this year though the business. I mostly just cruise with my wife and friends, but once in a while I go with customers, and other times I take my employee out. I thought this would be legit, but my accountant said no; I can only expense the cost of taking business trips not the whole boat.

I am looking for advice, and figure some of you guys may have some experinece with this. Will it hold up in an audit? Should I just give up and call it a personal item and pay the extra income tax?

Your opinions are appreciated!
 
What is the nature of your business? If you were in the construction business, you might list your boat on your equipment list as a dredge. If audited, just show them the photo in your signature! I've actually known a contractor to try this, and he got away with it for a while....
 
Does it meet second home criteria? Got beds, bath, kitchen? You should be able to subtract the taxes paid on the loan. Your accountant is correct. Only biz use can be deducted in your case.
 
Listen to your accountant. That is why you pay the guy. BTW, my understanding of the interest deduction is that it is only available if you meet the second home criteria mentioned above and the note is secured by a lien on the boat. So...those papers must be in place to pass an audit.
 
No.........I'm not an accountant, but have a friend who fought this battle with the IRS and won, sort of.

His circumstances are peculiar for most of us.......they have a plastics company that makes only plastic fishing lures. He was deducting 100% of the slip, maintenance, fuel, insurance, etc costs for a 44DB. The IRS audited his personal returns, found the boat then extended the audit to include his business. When all the dust settled, they were allowed to deduct about 40% of the cost of the boat provided they had documentation, logs, etc supporting how much of the boat's use was for product development, testing lures, entertaining customers, etc. Bottom line is they learned that you must have a legitimate business purpose for claiming the boat expenses and entertaining customers qualifies as an entertainment expense only and is subject to entertainment expense limitations.

The last time we spoke about this, they had about decided that the IRS spotlight on the boat was not worth the hassle and loss of other deductions they were taking. They live 250 miles from the boat and were deducting all meals, mileage, etc. as travel expenses for every trip to Florida whether it was for a legitimate business purpose or not. By documenting the boat use, it identified which trips were for business and which were personal, so they lost a sizeable deduction that would probably never have been questioned were it not for the boat.

I don't even do my own tax preparation; I just run and fix boats .........get competent advice baased on your circumstances from a CPA.
 
Sounds like good advice. The CPA says no on deducting the boat, and it sounds like you guys would agree. Bummer. You make a good point Frank - if the boat causes an audit and then they go through with a fine tooth comb, I may wish I never even tried it. I guess I'll just bite the bullet, so to speak
 
My boat is in a separate corporation and that thing never sees my personal returns... and there is no deduction in the corporation on it... not going there. The only good advice I ever got from a lawyer was "Don't f*ck with the IRS"...

One of my favorite lines from a recent movie was "You know how much tax there is on four million dollars? Six million dollars.. with interest and penalties."
 
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Listen to your guy. I am a CPA. Business expenses and a boat are a squirlly match. However, I would be very aggressive with the second home direction. If it has a dedicated cooking area, a dedicated sleeping area and a dedicated bathroom deduct the interest on the note.
 
Let’s not confuse personal and business tax deductions.

On the personal side, the interest only of the boat loan can be deducted if it has sleeping quarters, one head, cooking facilities and a sink. (Second home tax deduction)
On the business side, if the boat is in your personal name, you can only expense and deduct the cost of using the boat as a meeting place and document all cost associated with the meeting(s).

If the boat was owned by the business as a corporate purchase, which is very difficult because you need to prove that it was used primarily for business purposes, then you can deduct all cost associated with ownership, including depreciation.

That will be .02 please.
 
jrirvine1 said:
Let’s not confuse personal and business tax deductions.

On the personal side, the interest only of the boat loan can be deducted if it has sleeping quarters, one head, cooking facilities and a sink. (Second home tax deduction)
On the business side, if the boat is in your personal name, you can only expense and deduct the cost of using the boat as a meeting place and document all cost associated with the meeting(s).

If the boat was owned by the business as a corporate purchase, which is very difficult because you need to prove that it was used primarily for business purposes, then you can deduct all cost associated with ownership, including depreciation.

That will be .02 please.
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This makes sense to me. I rafted next to a guy in a beautiful 08 sundancer last year and he said it was a corporate boat. I guess I thought that was a good idea, but in all reality I rarely use the boat for anything that would benefit my business at all. Other than my sanity, of course!

About the interest on the note, I have heard of this before too, but my loan was not that big and I don't think it is even worth going after the hundred or so dollars I paid in interest last year, I bought the boat in the fall.
 
berth control said:
About the interest on the note, I have heard of this before too, but my loan was not that big and I don't think it is even worth going after the hundred or so dollars I paid in interest last year, I bought the boat in the fall.
Click to expand...

Every legit deduction is worth going after. It's your money. Why spend it on fighting STDs in the stimulus package?
 
I asked my CPA this same question and his answer was the same as all have posted here. He did tell me that one of his other clients was an excavating company. The firm had a D9 listed on the equipment schedule. The client then took him boating on the boat that happened to be named D9. The CPA did council the client to take it off as he was on a slippery slope!!
 
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Not worth the hassle IMHO. I have taken clients out on three of four occasions and had no problem billing the fuel to my company. If I ever had to justify it there would be no problem and I sleep well at night. I just make sure I fill the tanks when I do this (which is more than I know I used) but it will never be a problem.
 
Just curious...If you do take clients out on your boat and claim that as an expense are you required to obtain additional insurance to that affect? Just one more reason to think it might be a bad idea.
 
At the end of the day, if the boat meets the qualifications for a second home, you can deduct interest, taxes end of story no maintenance and no fuel, or dockage fees. It will not be worth it to try and save a couple of bucks by deducting the few business trips you have with the boat. One of the IRS's favorite tactics is to suck up time and be a royal pain. After all they are getting paid all the time they give you grief and you are getting nothing but grief.

Mr Salt
2001 540 CPMY
Caterpillar C-12s
Cape May NJ
 
A couple friends always felt they knew the tax regs better than the IRS. An audit opened up a can of worms that resulted in a stay in a federal prison.
 
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