Tax Advantaged Benefits For Sailors

[hellosailor]

10% isn't Scripture, but when you are using Arab numbers and decimal system accounting, it makes for handy rule of thumb. Which, I believe, is how it was said.


Hey, if you're in the drug trade, 10% is at least 10x too little. Maybe 100x too little.(G)
If you're sponsoring a Little Sister of Mercy, it is 100% too high.


Adequate risks and margins are all personal choices, but a good tax attorney, EA, CPA, or book can tell you what numbers the IRS has been known to use, subject to change.

[brownoarsman]

Originally Posted by hellosailor

Hey, if you're in the drug trade, 10% is at least 10x too little. Maybe 100x too little.(G)
If you're sponsoring a Little Sister of Mercy, it is 100% too high.

Risk-adjusted returns But yes, your accountants are probably best placed to answer this.

Instead of a boat though, think of the poor management consultants who may be working for your company. Always happy when clients had corporate jets, and they may even be easier to write off!


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[Lizzy Belle]

Originally Posted by GoingWalkabout

I do love the depreciation of $500,000 in the first year. Would help with even a larger boat.

I'm a little confused, to be honest.

You want the biggest boat you can possibly buy, which is fair enough. But what do you want to use the boat for?
All I see is someone looking for ways to use the boat as a floating tax avoidance option, but nowhere do I read what you, as a person, want.

Do you want to be able to sail it alone from time to time? Will you be living on it? If it's a second home, will you be OK with sharing your boat with the staff/crew you'll need to run the boat? If it's a second home and/or office, are you OK with chartering it and having your guests as a 1st priority, not your own wishes and needs?
Or do you just want to have it for the sake of having it, with the 1st priority being tax reductions, and use it in whatever way you still can allowing that?

Right now, you're all over the place when it comes to why you want the boat / how you want to use it, all from a financial / tax point of view, and most options simply do not mix.

As far as tax avoidance goes, something land based will probably be a better idea then a boat. Envy has nothing to do with that, it's just the way things are set up and I really doubt the IRS feels any envy or other emotions

If you want the boat for yourself, think about how you want to use it, and take it from there. Just pay whatever tax you have to pay - you have the right people already in place to ensure you don't pay more then you legally have to.

[David Hughes]

My personal research and professional advice by specialists in this matter indicate that the "profit 3 of 5 years" belief is total hogwash. For example Amazon didn't make a profit for a dozen years but was never deemed a "hobby" by anybody.

You will be measured on 9 key factors that indicate to the IRS a legitimate business with a legitimate profit motive. Some of those things include a business model, marketing expenditures and materials, spending your time on the business, etc. etc.

Someone correctly pointed out that a legit 3rd party charter company helps you satisfy several of the 9 areas, and someone else correctly pointed out the huge year 1 advantage of $500,000 of Section 179 deduction plus an extra $250k if purchasing new equipment for your charter business, all of which is a deduction against all other sources of income and is thus above the AGI line and therefore helps a great deal when facing AMT. And yet another pointed out that many yachts seem to made available for charter. The tax help is why that is so.

When done right it's not all that hard and you will be legit and defensible if in front of the IRS. Lastly, it's not cheating to use the law to your advantage. Be proud to be a wolf rather than a sheep. : )


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[weinie]

Originally Posted by David Hughes

My personal research and professional advice by specialists in this matter indicate that the "profit 3 of 5 years" belief is total hogwash. For example Amazon didn't make a profit for a dozen years but was never deemed a "hobby" by anybody.

You will be measured on 9 key factors that indicate to the IRS a legitimate business with a legitimate profit motive. Some of those things include a business model, marketing expenditures and materials, spending your time on the business, etc. etc.

Someone correctly pointed out that a legit 3rd party charter company helps you satisfy several of the 9 areas, and someone else correctly pointed out the huge year 1 advantage of $500,000 of Section 179 deduction plus an extra $250k if purchasing new equipment for your charter business, all of which is a deduction against all other sources of income and is thus above the AGI line and therefore helps a great deal when facing AMT. And yet another pointed out that many yachts seem to made available for charter. The tax help is why that is so.

When done right it's not all that hard and you will be legit and defensible if in front of the IRS. Lastly, it's not cheating to use the law to your advantage. Be proud to be a wolf rather than a sheep. : )


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https://www.irs.gov/uac/Business-or-...for-Deductions

The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year — at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses.

[timbenner]

Originally Posted by Lizzy Belle

I'm a little confused, to be honest.

You want the biggest boat you can possibly buy, which is fair enough. But what do you want to use the boat for?
All I see is someone looking for ways to use the boat as a floating tax avoidance option, but nowhere do I read what you, as a person, want.

Do you want to be able to sail it alone from time to time? Will you be living on it? If it's a second home, will you be OK with sharing your boat with the staff/crew you'll need to run the boat? If it's a second home and/or office, are you OK with chartering it and having your guests as a 1st priority, not your own wishes and needs?
Or do you just want to have it for the sake of having it, with the 1st priority being tax reductions, and use it in whatever way you still can allowing that?

Right now, you're all over the place when it comes to why you want the boat / how you want to use it, all from a financial / tax point of view, and most options simply do not mix.

As far as tax avoidance goes, something land based will probably be a better idea then a boat. Envy has nothing to do with that, it's just the way things are set up and I really doubt the IRS feels any envy or other emotions

If you want the boat for yourself, think about how you want to use it, and take it from there. Just pay whatever tax you have to pay - you have the right people already in place to ensure you don't pay more then you legally have to.

Good points!! Although putting a chunk of your money in a mobile asset, like a boat makes sense to me in this day and age. Especially when the banks pay nothing and will probably steal a percentage of your deposits next time they go broke (coming soon at a theater near you), since the Governments are all too broke to bail them out next time. Moving money in and out of different Countries is becoming more and more difficult and restricted.

Hmmm - maybe I should buy a bigger boat??

[Celestialsailor]

Originally Posted by Celestialsailor

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.

Originally Posted by GoingWalkabout

Sorry for offending you.

I didn't say I was offended and do not care for the passive/aggressive response...that's offensive. Earlier in the thread it was suggested calling one of your "highly paid corporate attorneys". That's why I think this is a bunch of hot air. Coming to a cruising forum to "wash your underwear" as it were.
I do enjoy your input on other threads but this one seems a little self absorbed.

[poiu]

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.

Snip..

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

Regards,
Chaya

I considered this issue also as the tax advantages are substantial. In the UK, we have a very similar tax system to the US and similar advantages from tax efficient boat owning arrangements. There are some differences. We don't have the second home allowance nonesense that you guys have, but we have a bigger sales tax (VAT) problem.

It is really tempting to focus on the tax issues, but there is a risk of letting the tax tail wag the dog. That is what your questions imply to me. There are, as others have suggested, and I would agree, more important issues than tax.

I'm not impressed by the attraction of sponsorship on the spinnaker. I can't imagine anything but a small amount of revenue could be at stake. You risk adverse publicity too, which is a risk anyway of corporate ownership. "The rich fat cat boss showing off" or 'look at the profits being made from the business I am giving her, it's time to negotiate a discount". This will rub-up some of your clients and employees the wrong way. A charter boat owning friend I know got adverse comments from his corporate entertained clients (overheard by the crew and relayed on). He thought they would be positively impressed. It backfired. Be careful.

If you own a boat in a corporate structure you really do have to run it as a business. You will have to confront the IRS and risk the stress and cost consequences of any such encounter. The boat is not your private space any more, you have strangers damaging it, you have extra crew in your face helping and at the same time hindering you and causing you management problems, bringing stress and occupying time.

There are a lot of wealthy people who want to spend money on boats, who also can't use them much and who are attracted to corporate ownership and charter and so there are a lot of boats out there in comparison to the number of charterers. A supply and demand mismatch. The result is very low numbers of weeks of charter rentals. Most people with medium to large charter sailing boats that I know do well to get 4 to 6 weeks a year. Sometimes more, but often much less. That goes only a small way to paying for the boat and probably doesn't even pay for the extra costs you will have running a charter business.

If you have decided a large cat is what you might want then the crew/not crew issue is right up there as a major question anyway, chartering or not. If you are going for crew, then it can encourage you to go for the charter business model as the crew costs are a major extra cost you will incur by operating a charter operation, and if you are going to employ them anyway then the extra costs of running a charter business are much smaller.

A corporate structure is often used just for personal liability protection, especially important if you employ crew and are US based (i.e vulnerable to an extremely expensive and highly litigious legal system).

There is another way to mitigate cost without tax allowances and that is to buy a second hand boat. The same dynamic that causes new boats to be bought and put into charter results in a surplus in supply of used boats onto the second hand market also (when the owners get tired of them). This can work to your advantage. The first owners always take the biggest hit on depreciation, especially with expensive boats and depreciation is the biggest cost of boat ownership by far. Get the nicest boat you are happy with and which you can sail without crew as crew are the second biggest cost. By purchasing second hand and by not employing crew your cost savings will be greater that all the tax savings you can muster on your new boat purchase. Plus you get a simpler, quieter, nicer, more private life.

[Sandero]

Years ago I was advised that a yacht mortgage was deductable as a home mortgage was if your boat was your home and lived aboard. Has anyone else expensed a yacht mortgage?

[David Hughes]

Originally Posted by weinie

https://www.irs.gov/uac/Business-or-...for-Deductions



The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year — at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses.

Understood, in cases of profit 3 of 5 years, etc. the IRS "presumption" is that you are a business rather than a hobby. But I stand by the claim that regardless of the profit, if you fulfill these certain 9 requirements you still qualify. You just don't get the "presumption". I have the IRS findings word for word if anyone is interested. Agreed it's not the "safe" route but with risk there can be reward.


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[DotDun]

Originally Posted by Sandero

Years ago I was advised that a yacht mortgage was deductable as a home mortgage was if your boat was your home and lived aboard. Has anyone else expensed a yacht mortgage?

https://www.irs.gov/publications/p936/ar02.html

For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. This means your main home or your second home. A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities.

[GoingWalkabout]

Originally Posted by hellosailor

10% isn't Scripture, but when you are using Arab numbers and decimal system accounting, it makes for handy rule of thumb. Which, I believe, is how it was said.


Hey, if you're in the drug trade, 10% is at least 10x too little. Maybe 100x too little.(G)
If you're sponsoring a Little Sister of Mercy, it is 100% too high.


Adequate risks and margins are all personal choices, but a good tax attorney, EA, CPA, or book can tell you what numbers the IRS has been known to use, subject to change.

Thanks.

[GoingWalkabout]

Originally Posted by Lizzy Belle

I'm a little confused, to be honest.

You want the biggest boat you can possibly buy, which is fair enough. But what do you want to use the boat for?
All I see is someone looking for ways to use the boat as a floating tax avoidance option, but nowhere do I read what you, as a person, want.

Do you want to be able to sail it alone from time to time? Will you be living on it? If it's a second home, will you be OK with sharing your boat with the staff/crew you'll need to run the boat? If it's a second home and/or office, are you OK with chartering it and having your guests as a 1st priority, not your own wishes and needs?
Or do you just want to have it for the sake of having it, with the 1st priority being tax reductions, and use it in whatever way you still can allowing that?

Right now, you're all over the place when it comes to why you want the boat / how you want to use it, all from a financial / tax point of view, and most options simply do not mix.

As far as tax avoidance goes, something land based will probably be a better idea then a boat. Envy has nothing to do with that, it's just the way things are set up and I really doubt the IRS feels any envy or other emotions

If you want the boat for yourself, think about how you want to use it, and take it from there. Just pay whatever tax you have to pay - you have the right people already in place to ensure you don't pay more then you legally have to.

Hi. Thanks for your advise. I know very well what I want to do and have stated so in this thread. Please check earlier postings if your interested. I am not at all looking at any type of tax evasion scheme. Just like in the United States the interest on a home mortgage is tax deductible and anyone in the US would think you were nuts if you had a mortgage if you didn't take that deduction. Doing so is not tax evasion in the slightest. All I am looking at is the best way to do things from both a personal and financial perspective.

Thanks,
Chaya

[GoingWalkabout]

Originally Posted by David Hughes

My personal research and professional advice by specialists in this matter indicate that the "profit 3 of 5 years" belief is total hogwash. For example Amazon didn't make a profit for a dozen years but was never deemed a "hobby" by anybody.

You will be measured on 9 key factors that indicate to the IRS a legitimate business with a legitimate profit motive. Some of those things include a business model, marketing expenditures and materials, spending your time on the business, etc. etc.

Someone correctly pointed out that a legit 3rd party charter company helps you satisfy several of the 9 areas, and someone else correctly pointed out the huge year 1 advantage of $500,000 of Section 179 deduction plus an extra $250k if purchasing new equipment for your charter business, all of which is a deduction against all other sources of income and is thus above the AGI line and therefore helps a great deal when facing AMT. And yet another pointed out that many yachts seem to made available for charter. The tax help is why that is so.

When done right it's not all that hard and you will be legit and defensible if in front of the IRS. Lastly, it's not cheating to use the law to your advantage. Be proud to be a wolf rather than a sheep. : )


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Thanks a lot David. And thanks for understanding.

[WindwardPrinces]

Originally Posted by David Hughes

My personal research and professional advice by specialists in this matter indicate that the "profit 3 of 5 years" belief is total hogwash. For example Amazon didn't make a profit for a dozen years but was never deemed a "hobby" by anybody.

Was Amazon run from a sailboat used as a tax dodge? I missed that bit.