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Old 08-10-2012, 15:54   #1
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Corporate Ownership

Is it worthwhile to form a subchapter S corporation to hold title to my documented vessel? Does this have any advantages beside separating liability from my personal assets? (I know it won't protect me from personal negligence claims.) Will it make any repairs or upgrades deductable from my income tax? Any other good it might do? How about the down side. Beyond the record keeping, do I have to show a profit - ever? Can I pay my own Subchapter S corp to use my own boat? Does this make me a vessel for hire? Will I need a Six Pack License to sail my own boat? Any guidance will be most welcome.
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Old 08-10-2012, 19:33   #2
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Re: Corporate Ownership

I ran the exact same question, along with a broader question of being able to write off boat expenses or the boat itself by my tax accountant prior to buying our last boat.

Her response was simple...

Unless you use your boat as a business, IE charter it out, or use it for a legitimate business function you cannot write off any of your boat related expenses.

There are things that you can legally write off. Things that will survive an audit.

For example...

The cost of setting your boat up to run your business from, IE telecommuting. This is the same as setting up a telecommuting employee. All of those costs are legitimate deductions. That would include telecommunications equipment, and or services that are used as a business function.

The cost of taking your employees out on a "team building" day would be deductable.

The cost of taking clients or prospective clients out on your boat would be deductable.

I was told that in order to figure out the last two items you could take your total cost of maintaining the boat for a given year. Divide that by the number of days you use the boat. Use that number as a cost basis per day. You could also depreciate a portion of the boats cost, but that would get really sticky when you sell it.

Theoretically you could buy a boat as a business model, and put the boat into charter. You could then depreciate the boat and write off all expenses. Then you could charter the boat yourself.

The risk of that is that you have to have a reasonable expectation of making a profit. Thats the basis thrust for the IRS definition of a business. In this case you'd have to activly attempt to charter the boat out, at the same price as you charge yourself when you go out. You would have to operate the boat as a business for it to actually be one.
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Old 08-10-2012, 21:46   #3
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Re: Corporate Ownership

Tashtego, if you can't afford or don't already have a tax attorney, CPA or EA to answer those questions, buy an hour with one. You'll need to discuss your tax bracket, and the details of your business.

The tax guy may not realize that once you have a business owning the boat, you may need commercial insurance, because now it isn't "privately" owned, it is business owned. So you ask your insurer about that side of things.

And of course, if the sole purpose of the corporation is simply owning the boat, the IRS can declare it to be a sham corporation and discard all benefits and protections and deductions you've taken for it, back to Day One.

Corporate shells? Yeah, folks use 'em. Sometimes they get away with it. Sometimes there's a real benefit. Buy an opinion from a tax pro, get it in writing, and if it is wrong, well, that's why he has malpractice insurance.
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Old 09-10-2012, 06:01   #4
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Re: Corporate Ownership

Quote:
Originally Posted by hellosailor View Post
Tashtego, if you can't afford or don't already have a tax attorney, CPA or EA to answer those questions, buy an hour with one. You'll need to discuss your tax bracket, and the details of your business.

The tax guy may not realize that once you have a business owning the boat, you may need commercial insurance, because now it isn't "privately" owned, it is business owned. So you ask your insurer about that side of things.

And of course, if the sole purpose of the corporation is simply owning the boat, the IRS can declare it to be a sham corporation and discard all benefits and protections and deductions you've taken for it, back to Day One.

Corporate shells? Yeah, folks use 'em. Sometimes they get away with it. Sometimes there's a real benefit. Buy an opinion from a tax pro, get it in writing, and if it is wrong, well, that's why he has malpractice insurance.
+1

I do nothing that could impact my taxes without running it by our tax CPA.

As a small business owner, I am one of those that pays the lions share of the taxes in the US. Not rich enough to avoid taxes, but make enough that they take a very large amount of $$.

I found that it was easier to just use the boat for legitimate business uses such as telecommuting than trying to come up with a semi legal loophole that will probably draw an audit, costing me more in time and energy than the deduction I got to begin with.
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Old 09-10-2012, 08:50   #5
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Re: Corporate Ownership

Short answer is "no." As ksanders pointed out, the kinds of things that you can deduct are all regardless of whether you own the boat yourself, or through a shell corporation.

Of course, the best answer is... Internet tax advice is worth exactly what you pay for it--NOTHING! Talk to a professional.
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Old 09-10-2012, 10:03   #6
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Re: Corporate Ownership

Ask your CPA or tax adviser about having a Single-Member Limited Liability Company (LLC) own the boat. A LLC can shield your other assets from liability claims, although this protection is not necessarily bulletproof. If your LLC is actually engaged in a profit-making enterprise you should be able to deduct business-related boat expenses. Your LLC does not need to be an active business, but then there will be no tax advantages. An LLC may be slightly simpler to set up than a corporation, but they are very similar.

If you are running a legitimate boat-related business, and/or you have significant assets to protect and you are concerned about boat-related liability, then an LLC or Corporation may be appropriate. LLCs and Corporations do cost several hundred dollars per year for filing fees, etc. Get professional advice. It may be simpler and cheaper to carry additional insurance, especially an "umbrella" policy.
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Old 09-10-2012, 11:05   #7
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Re: Corporate Ownership

This issue came up with a buddy boat of ours when they checked into the Pacific side of Costa Rica.

They are a Canadian flagged vessel with corporate ownership. The wife is designated as the owner of the corporation.

Because the vessel documentation listed the corporation name, but not it's corporate officers, Costa Rican Customs required her to come up with a legal document showing she was the owner of the Corporation, which she had not had to show before to Mexico, El Salvador or Nicaragua.

This required some extra emails back and forth to Canada and one extra day of processing into the country.

Corporations are usually used for tax dodges or liability purposes, neither of which normally apply to fulltime cruising boats.

Talk to your CPA and see what they think
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Old 09-10-2012, 18:40   #8
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Re: Corporate Ownership

One of the other POSSIBLE advantages is when selling the Corporation, you may be able to avoid sales taxes - you just buy the company. Since the ownership of the boat doesn't change, you don't have to re-register the boat. This may or may not be legal - I'm not an attorney or an accountant - so I don't know about that.

P.S. Our boat is owned personally by us. Not by our or another company.
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Old 09-10-2012, 20:15   #9
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Re: Corporate Ownership

What about sponsorship - For example if I were a small business owner and the business sponsored the sails on a private yacht, with the businesses logo etc. would the cost of that advertising be deductible. Probably yes.

If I also happened to be the boat owner, what are the implications?
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Old 09-10-2012, 20:29   #10
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Re: Corporate Ownership

One of the biggest issues with all these structures is they force you to switch to commercial insurance, and you must be have a licensed captain to operate the boat. For some owners this may not be an issue, but for most it's a deal killer. It also means any unlicensed person (wife, kids, ect) can't use the boat without you there.

Dan,

At least in the US the company can write off the cost of the advertising. This can even include the cost to transport a boat to regattas, race, ect... But not the personal cost of the crew, unless they are paid to race.

This can get tricky depending on the exact relationship of the owner of the corp, the boat, cost, justification for advertising, ect... I have set these up in the past, and it can be a good dodge, but the situation has to be right.
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