Tax Advantaged Benefits For Sailors

[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.

[JimandBlieu]

Full disclosure... I am an idiot and my CPA may not be any better. That being said, I asked similar questions a few years ago. If memory serves you can only deduct the cost to put the logo on sails, not the sails themselves and certainly not the vessel.

Don't take my word for it, consult your tax attorney. When (not if) you are audited I will be nowhere to be found. Your attorney will be sitting just to your right.


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[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.

[crabcake]

Two areas the IRS looks at with a huge magnifying glass

Racehorses and Boats

Just saying..........

[crabcake]

Originally Posted by jackheape

Instead of trying to structure the best tax situation through ownership, why don't you just borrow the money to purchase it and write it off as a second home? That is perfectly legal and straightforward. Another way to write it off is to get your Coast Guard 6 pack license, start a charter business, and then the whole shebang becomes a deduction.

Second home will only give you interest and property tax deductions IF you itemize. Been there, done that.

[canyonbat]

If the corporation owns the boat, you will be taxed on the value of the "personal use" of the boat. If you use it much it probably would offset the tax write-off. There is no free lunch!

[canyonbat]

Originally Posted by crabcake

Second home will only give you interest and property tax deductions IF you itemize. Been there, done that.

And, if you are a high earner, which seems likely, itemized deductions are phased out!

[Time2Go]

Originally Posted by GoingWalkabout

Life is tuff. If our tax system wasn't so egregious I wouldn't be wasting my time on such things. They take way too much from people who risk the most and create the most jobs and wealth for others. It is their greed that has people like me looking at ways to get back some of the hard earned money out of the clenched hands.

I remember years ago an old businessman saying to me the more you have the more you have to worry about. But you know I've been "relatively" poor and I've been rich. I can tell you with certainty I much prefer being rich. Even with the associated problems.

The worst phrase created by the 1% is "Job Creator"
These people are not altruistic they want to make money.
Exploitation of labor or capital, Take your pick.
To say that they are somehow better and thus deserve special treatment
I find offensive. Please share with us your tax returns and I'm sure we will see that your effective tax rate is lower than most of your employees.
Buy your boat for 2Mil and sail off into the sunset
Why even waste a moment of your time thinking about taxes on your toy?
I'm sure the folks that you have referred to that put there logos
On boats are thinking EGO and not ROI or Tax statergy
I'm sure all your highly paid advisors would cringe at your posting here.
Remember Leona Hemlsley
PS: I'm not surprised that you belong to the "Gun Owners"group

[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.

[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.

[Symphony]

It is good to consider the tax implications of our life choices and assets. I am happy this thread is active no matter how much smaller or larger my assets are to everyone else.

1) Second Home interest deduction is clean and simple. Write off 100% of the mortgage interest on home mortgages up to $1.1M. this is a total for all residences.

2) Second Home property tax deduction is clean and simple. write off 100% of property tax paid on all residences, no limit.

All the ideas of creating charter companies and holding companies merely move the income or losses around. If you can move charter business losses over to a profitable business you can reduce taxable income there which will generate a small benefit, but you must also factor in an overhead and admin cost to run everything, keep the books, audit risk, generally think about it.

As Thoreau said: A man (or woman) is rich in proportion to the number of things which he can afford to let alone.

If you are wealthy enough to pay cash for the boat then you should do so as the mortgage % rate will certainly be higher than any interest rate earned in bonds or bills - and the rate is risk free since you are the borrower.

I think a more valuable line of inquire may be reducing Sales Tax and ongoing Property Tax or Registration Tax. Sales taxes, VAT, transaction fees, whatever... these routinely cost 6-12% of purchase price and can run 0.5% to 1.5% annually, and that is a lot of money off the top. I would like to know more about registering a boat in a tax haven like Caymans or Turks & Caicos or Malaysia or Guernsey or -- who knows? who has done it here?

I know the Dashews always flew a Bermudan or Cayman flag while cruising the world. Must be something to it.

Would love to hear from CF members who are doing it or have the expert advisors.

[Nicholson58]

Be sure you name it something like, "TAX DODGE"


There are legit claims for alternate energy equipment you install. Some of these show as credits.

[Symphony]

i guess one man's legit claims are another man's tax dodge. The various tax credits and bonus depreciation schemes for equipment (energy efficient and otherwise) have not offered real benefits to anyone except the politically well-placed few selling the equipment or manufacturing the stuff on subsidy.

but tax credits are a great idea for getting solar panel or turbines, and possibly applicable to a second-home or business equipment asset. I am not interested in the charter angle to boats, but I know there are boat brokers who set up the charter biz and then take huge bonus depreciation the first year. I would think a sudden depreciation expense like that would instantly attract a well-deserved audit from every tax authority.

Surely the one place where solar or wind power could come close to breaking even is on a boat running Lithium or Carbon Foam batteries. The best energy efficiency tax credit deals are state-run, but I have not seen those applicable to anything but real property. Has anyone here purchased such for a boat and taken the credits?

[belizesailor]

In the end a boat is not a financial advantage of course, but there are a few potential tax advantages. To have any tax advantages it must be a business asset. The biggest advantage then is depreciation. A 1.5-2M$ boat on a depreciation schedulde could net a nice deduction/adjustment each year (no such thing as a "write-off"...a pet peeve of mine). Many related expenses can be treated similarly.

Beyond that general advice, I would get those high paid accountants/lawyers involved to look at your specific situation and set it up properly. Doing it wrong can be VERY expensive.

State specific regulations may come into play too (does in FL for example) so have them look at those too.

Also, such arrangements natuarally draw the attention of the IRS. As do resulting changes in your tax filings. This combination got me audited, but fortunately it was all set up properly and the IRS lost (actually found more money they owed me!)

[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.