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Old 23-04-2013, 16:32   #31
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Re: Boat ing Fun as a Business

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Originally Posted by double exposure View Post
I fled the corporate rat race 10 years ago by starting a charter business on a cat in the Caribbean. Back then, my accountant told me it wasn't a wise choice. Years later he told me that he wishes that he had the balls to do what I did. He is still in his office and I've had 10 awesome years of cruising.
You clearly have an active charter business. IMO, I don't think anyone could dispute that, based on what I know of it.
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Old 24-04-2013, 00:28   #32
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Re: Boat ing Fun as a Business

Once you take your boat out of charter, you create a taxable event. That's when you will pay all the taxes you "saved" when you started the business.

Lets say you buy a new laptop for your business for $1500. You take a 179 deduction. Makes sense, laptop computers are pretty cheap, they don't last that long, and who wants to screw around with a 10 year depreciation schedule on that? It's a waste of accounting effort.

Later, when you sell the laptop or convert it to personal use, you're supposed to report that as income - and pay tax on it. Now most people don't. "Oops - the laptop was lost/broken/stolen/given-away. I depreciated away the whole cost and it was worthless when I disposed of it."

Try that with a yacht. If you depreciate $400k (for tax purposes), you will save a lot of taxes. When you later convert the yacht to personal use or sell it (say, for $300k), you will have to pay taxes on that $300,000 "gain" - that's a lot of single year income, especially if you are already in a high income bracket that year.

Lots of 179 tax dodges are based on the expectation that the IRS will never come looking for you, but if they do...
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Old 24-04-2013, 00:43   #33
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Re: Boat ing Fun as a Business

To further expand on this depreciation point, the difference between your purchase price (400k) and selling price (300k) represent your "true" depreciation (400k-300k=100k).

Instead of taking a business loss for 100k, 179 is an "incentive" program that lets you take the ENTIRE deduction up front for the whole cost of the equipment, then taxes you on the backend for the "unused" deduction. In theory, it's a wash. In practice, it's beneficial to the company.

If you don't sell the boat, and take it for personal use, then you have to pay the tax based on the fair market value of the boat, even though you didn't sell it.

In theory, you will pay similar income tax as if you had simply purchased the boat used after several years of ownership. In theory, there is little or no benefit in this scheme to the owner, except for the expectation of profit in the intervening years. If there is no expectation of profit, then there is no business
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Old 24-04-2013, 04:01   #34
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Quote:
Originally Posted by double exposure View Post
I fled the corporate rat race 10 years ago by starting a charter business on a cat in the Caribbean. Back then, my accountant told me it wasn't a wise choice. Years later he told me that he wishes that he had the balls to do what I did. He is still in his office and I've had 10 awesome years of cruising.
Man, sorry to thread jack but this sounds great. Is it a single boat charter business? Crewed charters? Do you live on the boat? How do you advertise? Where is your business? I know, so many questions :-)
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Old 28-04-2013, 11:30   #35
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Re: Boat ing Fun as a Business

Yes, you are supposed to pay taxes on the "capital gain" when you sell or convert your boat to personal use. I believe it's called "depreciation recapture."

One small saving grace is that the recapture rate is only 25%. So if you're in a much higher bracket, then you will save a small amount in the end. Plus you can argue that money today is worth more than money tomorrow. So if you can save yourself $50k today (and make 10-20% per year on it) then you're better off.

Most of the time, however, I think people conveniently forget about reporting the gain and paying the 25% recapture.
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Old 28-04-2013, 12:41   #36
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Re: Boat ing Fun as a Business

Clearly the whole deal hinges on how the IRS views each individual's performance re. every small detail of the qualification list.
No way to know how your particular IRS auditor will interpret your particular case...until your audit takes place.
Helluva risk.
No sane man would take the Boat Broker's word for it...or any run of the mill, tax CPA's word either.
As in life...sounds like you pays your money...and takes your chance.
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