Tax Advantaged Benefits For Sailors

[belizesailor]

Originally Posted by Striker37

Loan or give/donate 1.5 mil to a friend and get him/her to buy the boat then you buy the boat from him/her for 1 dollar.I got a 200k yacht from my uncle for $1.00.$85 a year for registration.

Nope.

IRS would likely nail you AND the friend for that transaction, if they discover it...and the longer they dont discover it the more expensive it gets due to penalties and interest (adds up fast on $1.5M!). And $1.5M is well above gift tax allowances...remainder would be taxed as ordinary income (ouch!)...on money the friend no longer has. Market rate interest must be paid on a loan or that may be subject to taxes and penalties too. Etc...

I would discuss that $200K yacht with accountant/tax attorney. I suspect if the IRS discovered that, it could become a very expensive boat.

And he is still out the $1.5M so what would that accomplish?

[GoingWalkabout]

Originally Posted by sailing_gal

If you have as much money as you are claiming you do, you have all the proper tax legal advice available to you via CPAs and tax attorneys. They would be aghast that you are asking those questions in a sailing forum.

Of course you are correct and of course going walkabout is not my real name nor a registered boats name.

[GoingWalkabout]

Originally Posted by timbenner

I spent 5 years doing tax in Public Accounting, not to be a carrier tax accountant, but to learn how to dance around the IRS with my real estate business. My conclusion, "Pigs get fed and hogs get slaughtered"!!

Most people in your situation charter their boat. Shad Khan charters his new 308' yacht and almost breaks even for the year, with two charters to Russians per year. Is there money in that business, after loosing $100,000,000 when he sells the boat? In his case, who cares when he's got to find a way to consume $750,000,000 per year.

Which brings me to an alternative you might consider. The bigger the boat you get, the more crew you need to operate it. The bigger the crew you need, the more that you've put yourself right back into what you're trying to get away from - employees and management!!

Jimmy Buffet just bought a new sailboat and shrunk down to just 44'. Why, because he can handle it alone. No Crew Needed!

For me personally, I side with Jimmy. Pay cash, forget deductions, keep the boat small enough that the deductions are not financially material and MOST IMPORTANT, you can handle the boat alone.

I like your choice of boat though. I've had my Lagoon for over 10 years and love it. It's plenty of room for me, wife and child, with a stateroom left over. However, we use the boat to get away from people and employees.

The only deduction I've ever taken was for the sales tax when I bought it. My hobby is sailing - the first test applied by the IRS. If you loose money with your hobby - you are disallowed any deduction, arms length charter business excepted. Another issue for you to consider are the "related party" transactions you mentioned. Your Board, IRS and SEC love dissecting those!

One huge benefit we enjoy with our smaller boat is the IntraCoastal Waterway (ICW), stretching from Key West to NJ!! The Lagoon 380 is the only Lagoon with a mast short enough to use the ICW. Unless of course you chop the mast down.

On our way south, we've sailed 10 knots down the ICW, with a Northeaster blowing 25 knots from Titusville to Sebastian, with 2' swells. The boats you mentioned would have to be outside, pounding 12' to 15' seas head on into the Gulf Stream. Breaking stuff and someone punching you in the stomach repeatedly the entire way!! While we've stopped at a waterfront restaurant for brunch or sitting on the hook looking at a neighbor in their $6+ mill home!

A thorough evaluation of your needs and wants should be done, hopefully excluding ego, because all boats have pluses and minuses to be considered. We Americans always think that bigger is better. Who else puts a V-8 engine in a motorcycle?? However, once you own one, you'll go back to a Harley.

Thank ou very much for your words of wisdom. You have certainly given me food for thought as they say. Thank you and happy sailings.

[GoingWalkabout]

Originally Posted by ocean.jedi

Don't be penny wise and pound foolish. If you are a US citizen, then pay the capital gains tax and be thankful its not taxed as ordinary income. Enjoy the boat; its a hobby not a business to keep the IRS and the SEC out of your life as much as possible. The US government nailed Tyco former CEO Dennis Kozlowski for throwing lavish corporate parties. But even today its a common business practice done all the time. I am not saying the government is correct, or class envy is a good thing, but its a reality.

And PS Steve Jobs died because he knew better than his doctors. he had the one form of pancreatic cancer that they can cure, and he opted to treat it with diet. Good luck.

All points well taken. Thank you. The Steve Jobs info really surprised me.

[Symphony]

Selling any item to a related party like that is termed a Bargain Sale and not at arms length. IRS and other tax agencies can impute market value price (they will guess very high) and then assign income tax and property tax liabilities.

[valhalla360]

Most of the options just move the profit and loss around. Assuming you own the corp, saving on the boat translates to more profit on the business or vice versa. Either way you are paying tax.

The way that you get away with it is if you use it for wining and dinning clients but that means it's not your toy to play with as you like. For the true high end CEO who can only use it couple weeks per year, that can be fine. For lower tier, it makes a lot more sense just to charter for those couple weeks.

[GoingWalkabout]

Originally Posted by Symphony

Selling any item to a related party like that is termed a Bargain Sale and not at arms length. IRS and other tax agencies can impute market value price (they will guess very high) and then assign income tax and property tax liabilities.

Understood. And your are correct. On another posters point I'm not sure how the suggestion of a second home mortgage right off would work unless I loaned the money from one of my corps to myself as a mortgage loan on the boat that I need to pay off back to my corp that provided the mortgage. If what I understand than is that loan mortgage interest could be deductible against my income. I hate false debt structuring and think it could be very risky. I am sure the taxing guys have established case law against this. But I could be pleasantly proven wrong.

Buying the boat in a charter program is probably worth looking into. I know one up market catamaran manufacturer that makes 70 and 80 footer luxury models has an in house charter program. I'm thinking if I go down that path then I should be looking at a the higher end of the market rather than being just one of many other charter boats out there. But then I'm going to have to study more the upper end charter market but from the look of it you don't have to get that many charters per year to meet the IRS requirement of the charter business having to be a real business.

I could of course go smaller, go cheaper or just go ahead and buy what I want and keep funding everything out of my taxable income. I know I am going to draw the ire of some but I can't help myself from looking at doing things the smart way and saving where I can so that I can spend where I want.

It is correct that this is not the place to go into all the ins and outs of an individuals particular situation. Every ones situation is very different. What could work for one person may not necessarily be the best for another. I know that I wouldn't want to have my boat being chartered out every other week and driven around like a rental car. So if I want to go down the charter route I may have to move into even a higher price bracket and look at doing the charter business for one or two times a year and then being able to write off all my boat related expenses.

A very simple way that could work is that I set up a charter company, put the boat under a charter agreement. Advertise it in some places so that I can show it was a business and then I would have to make sure that I do get some paying customers every year. From what I've learned so far is the IRS will deem a charter business as a hobby if you don't make money within the first 3 years. Nothing that I have read has stated how much profit the charter company has to make however for it to pass the business test.

Thanks all. I really do appreciate your contributions. It is really helping me thing through a lot of things. Stuff that I need to think through even before sitting down with my land locked advisors. I know they are going to hate me.

[Symphony]

You can find discussions on the boards here with advice on setting up the Charter Business Company. Helps to have a management company running it, lots of record keeping, running it in a business like manner. IRS likes to declare it a hobby (not deductible); having a profit 3 out of 5 years gives a pretty good "safe harbor" but is not an actual law.

If you can call your new dream boat a charter business then Section 179 depreciation is available ($500,000 the first year) plus accelerated depreciation thereafter. If you are a high-income earner then you'll defer or escape quite a bit of income tax. Hold the boat long enough and you will not worry too much about recapture.

Given you may have other types of income or shelters - you need to consider Alternative Minimum Tax in this too. only way to know for sure is to create a tax return. do it with software and play with the numbers.

other expenses such as interest, management, advertising will all be tax deductible against the income you'll need to generate in order to establish a business intent, and you could even deduct these excess losses from your regular income. of course, you will actually have lost that, but still - IT'S a BOAT.
=]

[GoingWalkabout]

Originally Posted by Symphony

You can find discussions on the boards here with advice on setting up the Charter Business Company. Helps to have a management company running it, lots of record keeping, running it in a business like manner. IRS likes to declare it a hobby (not deductible); having a profit 3 out of 5 years gives a pretty good "safe harbor" but is not an actual law.

If you can call your new dream boat a charter business then Section 179 depreciation is available ($500,000 the first year) plus accelerated depreciation thereafter. If you are a high-income earner then you'll defer or escape quite a bit of income tax. Hold the boat long enough and you will not worry too much about recapture.

Given you may have other types of income or shelters - you need to consider Alternative Minimum Tax in this too. only way to know for sure is to create a tax return. do it with software and play with the numbers.

other expenses such as interest, management, advertising will all be tax deductible against the income you'll need to generate in order to establish a business intent, and you could even deduct these excess losses from your regular income. of course, you will actually have lost that, but still - IT'S a BOAT.
=]

Thanks Symphony. Now that is interesting info. I'll have to do some more searching here. Great. Thanks.

[belizesailor]

Originally Posted by Symphony

You can find discussions on the boards here with advice on setting up the Charter Business Company. Helps to have a management company running it, lots of record keeping, running it in a business like manner. IRS likes to declare it a hobby (not deductible); having a profit 3 out of 5 years gives a pretty good "safe harbor" but is not an actual law.
...

Setting up your own of course requires more effort and overhead you must deal with (or pay someone to deal with) and it is less "at arms length". Especially an issue if you dont run many charters. Some try to do this and just run a few bogus charters to related parties...bad idea. I know of a few whove been busted for this practice. In FL they not only got dinged Federally, but lost their sales tax exemption on the boat (big ouch).

Having an unrelated company manage it makes it much more clearly and verifiably a business. IRS tried to declare my activities a hobby once, but the boats were managed by a third party and the record keeping was good, revenue/profit verifiable, so that helped to weaken their argument to the extent they dropped it. The agent clearly personally resented what I was doing (sailing school/charters), but enjoying your business is not a crime.

[belizesailor]

A related aspect to consider is legal liabilities. Having the boat held in a foreign corporation, foreign flagged, and managed by a third party, makes it highly unlikely you could personally be held laible for anything boat related.

Though it will require some additional reporting under FATCA.

[Dave22q]

Assuming the government is stupid is sometime right but always unwise. Dodges like phony charter businesses or insider loan deals are never without risk. Before using you might ask yourself how might a lower middle class juror react to my explanation of why it is really ok.

[weinie]

Establish a private foundation. Purchase the boat with foundation money. Fill boat with contemporary/post war art acquired by your new philanthropic foundation at evening sale art auctions at Sotheby's and Christies. Hang said art work in boat. Boat is now a floating museum. Allow "public" to view said artwork as you travel from remote destination to destination. Deduct all expenses including interest payments on boat, repairs, fuel, etc. Set yourself and family members up as employees of your foundation with a "comfortable" expense account. Profit.

[timbenner]

Originally Posted by Going Walkabout

Understood. And your are correct. On another posters point I'm not sure how the suggestion of a second home mortgage right off would work unless I loaned the money from one of my corps to myself as a mortgage loan on the boat that I need to pay off back to my corp that provided the mortgage. If what I understand than is that loan mortgage interest could be deductible against my income. I hate false debt structuring and think it could be very risky. I am sure the taxing guys have established case law against this. But I could be pleasantly proven wrong.

Buying the boat in a charter program is probably worth looking into. I know one up market catamaran manufacturer that makes 70 and 80 footer luxury models has an in house charter program. I'm thinking if I go down that path then I should be looking at a the higher end of the market rather than being just one of many other charter boats out there. But then I'm going to have to study more the upper end charter market but from the look of it you don't have to get that many charters per year to meet the IRS requirement of the charter business having to be a real business.

I could of course go smaller, go cheaper or just go ahead and buy what I want and keep funding everything out of my taxable income. I know I am going to draw the ire of some but I can't help myself from looking at doing things the smart way and saving where I can so that I can spend where I want.

It is correct that this is not the place to go into all the ins and outs of an individuals particular situation. Every ones situation is very different. What could work for one person may not necessarily be the best for another. I know that I wouldn't want to have my boat being chartered out every other week and driven around like a rental car. So if I want to go down the charter route I may have to move into even a higher price bracket and look at doing the charter business for one or two times a year and then being able to write off all my boat related expenses.

A very simple way that could work is that I set up a charter company, put the boat under a charter agreement. Advertise it in some places so that I can show it was a business and then I would have to make sure that I do get some paying customers every year. From what I've learned so far is the IRS will deem a charter business as a hobby if you don't make money within the first 3 years. Nothing that I have read has stated how much profit the charter company has to make however for it to pass the business test.

Thanks all. I really do appreciate your contributions. It is really helping me thing through a lot of things. Stuff that I need to think through even before sitting down with my land locked advisors. I know they are going to hate me.

Speaking generally, there are basically 2 types of charter programs. You get a predetermined guaranteed amount of money for a predetermined number of years (SunSail and Moorings for example - my preference) or you get a % of the take, if any.

I've looked at buying a bigger boat and placing it under the Moorings and SunSail programs. Unlike most all other alternatives, SunSail and the Moorings are credit worthy. A BIG ISSUE FOR ME. But then I wouldn't have it close by for weekly enjoyment and total control over when I want to use it.

The other route requires a lot of trust, which in the Carribean eliminates that alternative for me, at least for a $1 - $2 mill+ boat. Some of the boat manufacturers, that make a low quantity of large boats and offer charter services - are not credit worthy. If I'm going to place a $1 - $2 mill+ investment into an entities hands - I would want them credit worthy. What is my definition of credit worthy? Not Gun Boat (currently in chapter 11), although I would love to have a Gun Boat, I wouldn't give it back to them to handle for me! Nothing personal, just wouldn't want to get caught up in their financial mess.

In conclusion, I'll keep a small, 2nd home, less financially material boat, with NO EMPLOYEES attached, low operating costs, close enough to home that I can get use out of it and most important - that fits under the bridges on the IntraCoastal Waterway.

In years past, we've put our boat in the Bahamas early winter, then bring it back to North Florida in June - pre-hurricane season, flying back and forth in between.

This year, we're taking it to the Gulf of Mexico to explore the west coast of Florida, maybe a week at a time, every other month as business permits. Leave it in a marina, rent a car, drive home. Rent a car, drive to the boat, drop the car and sail on to the next city/marina. A moving second home.

[Celestialsailor]

Originally Posted by GoingWalkabout

Hi All,

First I want to wish everyone a wonderful 2016 full of success and wonderful boating pleasure.

So I've been thinking about how best to utilize my investment in my sailboat in respect of United States taxation.

I am lucky to be the owner (founder and majority shareholder) of a high value publicly traded company. I intend to pull the trigger on a purchase this year that will be between $US1.5 to $US2 million. I'm particularly interested in either the Lagoon 560, 620 and now the to be released this year the Lagoon 77. I am particular to the Lagoon range because of their layout which for me in my opinion has the best layout for entertaining. But I digress.

And before I get jumped on for posting in CF rather than going to one of my highly paid corporate attorneys I am posting her in the chance that other boaters have already looked at this question. Of course whatever direction tax wise I decide to go in will be done with some pretty sound legal and accounting advice as well. But as a start I think it prudent to brain storm some ideas amongst other boaters who may have I am sure, some great ideas to consider.

My first thought is having seen how a well known corporate chief who is an ardent sailor gas his boats spinnaker advertising his company. I would think that he has an advertising agreement with his company for the advertising on his sailboat. What would be a reasonable charge for such name advertising placement? I suppose I could ask a national big advertising agency for a written opinion and as I type I think this will be a good idea anyway. Having an independent cost basis would be a good insurance in case of IRS questions.

So I think I have one tax benefit that I could utilize. There could be some push back in saying that for it to be legitimate advertising it needs to get reasonable exposure. Such as sailing around Manhattan for part of the summer with company name on the Asymmetrical and possibly the mainsail. Also look at getting some photos of the branded sailboat in some trade journals as part of the public company branding strategy. Seems to work for Rolex.

Along the same lines of developing exposure to justify corporate expenditure, perhaps look at developing a web channel for corporate sponsored production vessels races. Executed properly this could be packaged for crossover into a cable channel show.

I know of the second home write offs but somehow I don't think they will be as good as the corporate sponsorship approach. I could of course be wrong on this.

Then there is the corporate office. If I set the sailboat cruising catamaran up as an office with all the high tech comma gear along with meeting space and I sail it to New York for meetings and also parts of the med and the UK for meetings I think this could qualify as an office expense much like a physical office. I am sure I would gave to stay away from the Caribbean but if I do sail there I would have to write it in a log as for pleasure and percentage wise take that off my overall expenditure. Not a bad idea in itself to show that I am being honest in separating business from pleasure.

I would really appreciate some feedback or further suggestions. Not criticism for looking at legal ways of managing my affairs.

Regards,
Chaya

To me, this seems like a bunch of hot air. If indeed you make that much to purchase a 2 million dollar boat....pay your fair share. We little people have to and a much greater portion than the top 1%.
As far as a Lagoon 77...why not buy a used barge and build a luxury home on it. I doubt your hob-nob guest would know the difference.