Cruising a a Business

[Tscott8201]

Just had a crazy thought. Poking around Youtube I found a channel run by some cruisers that document their voyages and then sell them. This got me thinking about how you could use your boat as a business expense without the hassle of using it as a charter vessel. What would stop me from buying a boat and a bunch of camera equipment, documenting my voyages and posting it all to a Youtube channel? I could claim the boat as a business expense as well as all the gear and the costs of the journeys as well. Obviously it probably wouldn't be a profitable business so you would still need to have some money to start with but it would at least provide a hefty write off. You could run a blog as well to increase your footprint. Thoughts?

Tom

[travellerw]

Pretty sure there are few couples doing that (I actually have 5 in my Youtube subscriptions).

Yes there would be some great writeoffs, but there is also some risk. What if you got audited?

Eventually.. The government will ask questions (at least here in Canada). A business can only loose money for so long.

[FollowingCs]

Originally Posted by Tscott8201

but it would at least provide a hefty write off.

I'm not an accountant, but usually you can't write off a business loss unless you have income against it.

For example, if you buy a computer for $1,000 but then the business that bought the computer doesn't make any money, you can't just deduct $1,000 from your regular income. Assuming you are talking US Tax code.

~ Following C's ~

[belizesailor]

First, there is no such thing as a "write off". This is a popular term that creates many misconceptions, but you wont find it anywhere in IRS regulations. You can reduce your taxable income by applying certain approved adjustments, but in effect you are just saving a percentage relative to your tax bracket...not the full amount as the term "write off" implies.

You must have income to apply those adjustments against. No income = no deduction.

The IRS also has tests for what constitutes a valid business. Fail these tests during an audit and you will owe back taxes and penalties on the full past amount.

[Travelnik]

Originally Posted by travellerw

. A business can only loose money for so long.

Then it becomes a government agency!

[BandB]

This would clearly be classified as a "hobby" and the losses would not be allowed to offset other income. The regulations were revised years ago to take care of such abuse of the system. One of the leading examples was the raising of horses, when actually they were just horses for their kids to ride in equestrian events and none were ever sold. When it comes to things like airplanes and boats most agents immediately start questioning. "Yachts" are automatic targets.

[denverd0n]

BandB pretty much got it. If you are making any money at this, you can deduct expenses against that income. But if you claim deductions against any other income then the IRS is going to look at you very, very closely (can you say "audit"?).

It's interesting that you mention horses, BandB, because my dad did exactly that when I was a kid. He had a "regular" job in town. We lived a little ways outside of town and had a barn and horses. He tried to make money by renting out stables and breeding and selling horses. For several years he took expense deductions against the small amount that he made, as well as against his outside income. Eventually got audited and that put an end to that. It was made clear to him that he could use the expenses involved in the horse operation ONLY to offset income from the horse operation. NOT to offset any other income.

[belizesailor]

Originally Posted by BandB

This would clearly be classified as a "hobby" and the losses would not be allowed to offset other income. The regulations were revised years ago to take care of such abuse of the system. One of the leading examples was the raising of horses, when actually they were just horses for their kids to ride in equestrian events and none were ever sold. When it comes to things like airplanes and boats most agents immediately start questioning. "Yachts" are automatic targets.

Yep, having a "yacht" as a business raises a flag. It did in my case years ago. The IRS audited me. The agent in charge clearly resented the fact that I was off living large in the Carib and deducting expenses for it...while they schleped away at such a mind numbing job.

Fortunately I have a good accountant, was verifiably running a legitimate business (sailing school), and all the books were in good order. In the end they went away empty handed, and a lot less cocky than they started out...competent professional representation is a good thing.

Keep in mind too that there is no statue of limitations on Federal tax matters. You may get away with it for years, and I know those who have, only to have the Tax Man come knocking years later. I don't care to live looking over my shoulder, so I don't mess with the IRS.

[BandB]

Originally Posted by belizesailor

Keep in mind too that there is no statue of limitations on Federal tax matters. You may get away with it for years, and I know those who have, only to have the Tax Man come knocking years later. I don't care to live looking over my shoulder, so I don't mess with the IRS.

Actually there is a limitation on audits, 7 years. The exception to that is if more than 20% of the income is not reported. So basically fraud extends it but disagreement on interpretation or small mistakes doesn't.

[ksanders]

So to add to the OP's question...

My CPA when questioned about some of my ideas to reduce my taxable income through methods like you described told me

Paraphrasing here...

In order to be a business, the entity has to have a reasonable expectation of making a profit.

I wish there were a easy way to make my boat a business deduction that would survive an audit. But we all wish that don't we ???

[travellerw]

I think it would be much easier if you were from Canada. Our tax laws are a look title more lenient.

You certainly couldn't write off everything, but some things for sure. Things like cameras, computers, part of communications bills.

If you did that, I think it would be a reasonable expectation to make a profit in 3 years.

It certainly possible to make a living off a vlog/blog. The eevblog guy has been doing it for 3 years.

Sent from my Nexus 4 using Cruisers Sailing Forum mobile app

[gilgsn]

Making money with YouTube or Adsense is not as easy as it seems. You must have a very large audience, which can take years to build. Filming and editing requires skills that aren't so obvious. I bet that for every channel that succeeds, hundreds fail or stagnate miserably at a hundred bucks a month.. But that wasn't really the question, so...

Gil.