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Old 03-01-2016, 10:07   #46
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Re: Tax Advantaged Benefits For Sailors

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Originally Posted by Striker37 View Post
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.
And then sit back and wait for the IRS to audit you. After which you will get to enjoy paying your back taxes, as well as penalties and interest.

There is tax avoidance, and there is tax evasion. The difference being that the former is perfectly legal and completely ethical, while the latter is not. The suggestion above is the latter, and nothing but.
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Old 03-01-2016, 10:08   #47
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Re: Tax Advantaged Benefits For Sailors

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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.
Sorry for offending you.
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Old 03-01-2016, 10:10   #48
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Re: Tax Advantaged Benefits For Sailors

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And then sit back and wait for the IRS to audit you. After which you will get to enjoy paying your back taxes, as well as penalties and interest.

There is tax avoidance, and there is tax evasion. The difference being that the former is perfectly legal and completely ethical, while the latter is not. The suggestion above is the latter, and nothing but.
I agree. I'm not interested in tax evasion one bit. Just what is legal. Thanks.
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Old 03-01-2016, 10:19   #49
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Re: Tax Advantaged Benefits For Sailors

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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.
Or I could run healthy body and mind therapy cruisers for underprivileged. Offer floating healing trips for the wealthy. All kinds of recovery programs that would qualify for running a medical based charity. No end of how creative one could be. Document and justify.
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Old 03-01-2016, 10:22   #50
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Re: Tax Advantaged Benefits For Sailors

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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.
True. Thanks.
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Old 03-01-2016, 10:46   #51
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Re: Tax Advantaged Benefits For Sailors

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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.
Sounds like a wonderful sailing life. I'm looking at continuing to work for many more years and I would like to use the boat in a practical way for yes even entertaining. Also as an office in say the Med. Floating around from one perfect beach to another at my stage is ok for a week but will not be what I would be happy doing for months on end. Moving from saying New York to the UK and then to France etc. would be wonderful in my mind. Having a moveable office and home has tremendous strategic as was as pleasure value for me. I've even thought of perhaps buying a berth in Europe and then flying to Euro destinations for my face to face meetings.

Just because its a boat and by its nature causes envy I don't see why I can't receive the same expense right offs and tax benefits that I would get with a land based office etc.
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Old 03-01-2016, 11:22   #52
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Re: Tax Advantaged Benefits For Sailors

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Sounds like a wonderful sailing life. I'm looking at continuing to work for many more years and I would like to use the boat in a practical way for yes even entertaining. Also as an office in say the Med. Floating around from one perfect beach to another at my stage is ok for a week but will not be what I would be happy doing for months on end. Moving from saying New York to the UK and then to France etc. would be wonderful in my mind. Having a moveable office and home has tremendous strategic as was as pleasure value for me. I've even thought of perhaps buying a berth in Europe and then flying to Euro destinations for my face to face meetings.

Just because its a boat and by its nature causes envy I don't see why I can't receive the same expense right offs and tax benefits that I would get with a land based office etc.
A Lagoon in the 50'+ range will typically require some skilled help to handle. A boat that big would have plenty of room for a helper or hired captain. I wouldn't want to handle it by myself.

I too looked at buying a berth near my home port (Ponte Vedra Beach, FL) when they were giving them away in 2008. However, the thought violated a principle I have for my boat ownership: Keep the boat roaming and not in it's home port!!
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Old 03-01-2016, 11:43   #53
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Re: Tax Advantaged Benefits For Sailors

While my personal response is just pay your damn taxes, even I recognize that is a less-than-helpful reply so I will offer this. There is a reason why every mega-yacht you see can be found on Google as offered for charter. It just remains to be seen whether your proposed purchase is big enough to warrant the paperwork and still come out ahead.

Just my 2 cents...
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Old 03-01-2016, 12:02   #54
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Re: Tax Advantaged Benefits For Sailors

" 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. "
The IRS policy on "business? or hobby?" used to be very simple and AFAIK it still is. If you don't turn areal profit in 3 of the first 5 years, they declare it to be a sham, a hobby, and disallow everything. Then they start fines and penalties.
So, no, you, don't charter it for a week or two, you use a professional management company or agent, who is actively trying to book a 100% charter usage rate. And can document that activity. Anything less, and you will be suspect.
The tax men (state and federal) also look at things like reported sales prices. If you register a million dollar boat and submit a bill of sale (and taxes, etc.) that says you paid $10,000 for it, they will automatically look up the book value and bring charges against you. If you can't prove there was "other consideration" or perhaps $990k in damages that had to be repaired...again, they'll go after your hide.
Obviously they don't have the time and resources to check every transaction, but they actually enjoy that. The longer it takes them to catch you, the more years of interests and fines and compounded penalties they get, so they're happy either way.
And if you want "mortgage" deductions for your second home? Remember, if you're not living in it full time, there are also very strict limits about rental use of the property. Sometimes, it is easier to keep things simple, because as your accountant would probably agree, tax men aren't always geniuses, but they are relentless. And sooner or later, they catch wind of all the new schemes.
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Old 03-01-2016, 12:11   #55
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Re: Tax Advantaged Benefits For Sailors

HI Walkabout,

I have a family member that retired from his job as captain on big, fancy yachts (the last was a Feadship around 200') and now runs a business consulting, engineering, chartering and managing megayachts. Basically what he does I think is what you're asking about.

If you end up with a 55' or so Lagoon that might be a bit smaller than he usually deals with but if you're interested send me a PM and I'll send contact details.
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Old 03-01-2016, 13:04   #56
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Re: Tax Advantaged Benefits For Sailors

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Originally Posted by weinie View Post
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.
Or just make your boat a work of art.

Lots of boats do that... for example "El Galeon".

https://www.elgaleon.org/
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Old 03-01-2016, 13:11   #57
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Re: Tax Advantaged Benefits For Sailors

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Originally Posted by hellosailor View Post
" 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. "
The IRS policy on "business? or hobby?" used to be very simple and AFAIK it still is. If you don't turn areal profit in 3 of the first 5 years, they declare it to be a sham, a hobby, and disallow everything. Then they start fines and penalties.
So, no, you, don't charter it for a week or two, you use a professional management company or agent, who is actively trying to book a 100% charter usage rate. And can document that activity. Anything less, and you will be suspect.
The tax men (state and federal) also look at things like reported sales prices. If you register a million dollar boat and submit a bill of sale (and taxes, etc.) that says you paid $10,000 for it, they will automatically look up the book value and bring charges against you. If you can't prove there was "other consideration" or perhaps $990k in damages that had to be repaired...again, they'll go after your hide.
Obviously they don't have the time and resources to check every transaction, but they actually enjoy that. The longer it takes them to catch you, the more years of interests and fines and compounded penalties they get, so they're happy either way.
And if you want "mortgage" deductions for your second home? Remember, if you're not living in it full time, there are also very strict limits about rental use of the property. Sometimes, it is easier to keep things simple, because as your accountant would probably agree, tax men aren't always geniuses, but they are relentless. And sooner or later, they catch wind of all the new schemes.
Thanks Hellosailor. I appreciate your advise. One question that I haven't gotten an answer too is. How much profit would be needed to take it out of the hobby classification into the real business side of the ledger? Also I also understand that the second home mortgage deduction would probably count out renting/chartering the boat. These are two different ways of doing things. I like owning things debt free. Any form of debt structuring would be by its nature a construct. I have problems with that. Kind of narrowing down my options I think. All good comments though. Helping me think it through. I do love the depreciation of $500,000 in the first year. Would help with even a larger boat. A lot to think about. Thanks.
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Old 03-01-2016, 14:11   #58
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Re: Tax Advantaged Benefits For Sailors

"Thanks Hellosailor. I appreciate your advise. One question that I haven't gotten an answer too is. How much profit would be needed to take it out of the hobby classification into the real business side of the ledger?"
AFAIK that is either up to the skepticism of the agent reviewing your finances, or a secret number that is part of the IRS's programming in any given year. (Incredible how their computer software fails, year after year.)
So, one percent? One dollar? Well, maybe. Forty or fifty percent of the operating budget? Might keep more people happy. Until the percent reaches a substantial payback o investment, you're at risk. The rule of thumb I've heard (to from the IRS) is that any business should be able to generate a 10% ROI in every year--or else you're losing money.


If you want to do this kind of dance, I'd say to put the boat on hold for two years and take some dance classes: Formal courses or online courses in business and tax management. (Which, sometimes can be tax-deductible as well.(G)


I'd mention the term "MBA" but, sadly, for the last 50 years to quality of varying MBA programs has been about as good as "the weather".


Either that, or find a good shyster, excuse me, tax attorney, and pay for a half day of their time, exploring the options. Call that "tax prep" and it might be deductible too.(G)
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Old 03-01-2016, 15:18   #59
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Re: Tax Advantaged Benefits For Sailors

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The rule of thumb I've heard (to from the IRS) is that any business should be able to generate a 10% ROI in every year--or else you're losing money.

The 10% rule of thumb probably comes from the historical returns of the S&P (if the risks were equal, one would just put their money in the S&P rather than in the business if the business was returning below 10%). There are a lot of reasons now to think the long-term return rate of the S&P will be lower in the future than it has been in the past, and one is starting to see this in reduced market risk premiums. Probably useless pedantry, but it also means you might avoid the radar at a lower return rate, like a 7% ROE, or at the very least, have a defensible reason why your return rate is lower than past market rates.

I would also add that this has come up on previous threads quite often, and chartering the boat seems to be the way most go about it. All the arms-length stuff to prove a profit is above my head though. Good luck!


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Old 03-01-2016, 15:28   #60
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Re: Tax Advantaged Benefits For Sailors

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Originally Posted by hellosailor View Post
"Thanks Hellosailor. I appreciate your advise. One question that I haven't gotten an answer too is. How much profit would be needed to take it out of the hobby classification into the real business side of the ledger?"
AFAIK that is either up to the skepticism of the agent reviewing your finances, or a secret number that is part of the IRS's programming in any given year. (Incredible how their computer software fails, year after year.)
So, one percent? One dollar? Well, maybe. Forty or fifty percent of the operating budget? Might keep more people happy. Until the percent reaches a substantial payback o investment, you're at risk. The rule of thumb I've heard (to from the IRS) is that any business should be able to generate a 10% ROI in every year--or else you're losing money.


If you want to do this kind of dance, I'd say to put the boat on hold for two years and take some dance classes: Formal courses or online courses in business and tax management. (Which, sometimes can be tax-deductible as well.(G)


I'd mention the term "MBA" but, sadly, for the last 50 years to quality of varying MBA programs has been about as good as "the weather".


Either that, or find a good shyster, excuse me, tax attorney, and pay for a half day of their time, exploring the options. Call that "tax prep" and it might be deductible too.(G)
I seriously appreciate your advise. No I don't want to take dancing lessons. I also want to sleep well at night. I could say a lot more but good sense is telling me this is not the place to do so. Again thanks for your good advise.
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