Tax Advantaged Benefits For Sailors

[GoingWalkabout]

Originally Posted by Celestialsailor

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.

Hi Celestialsailor. I too enjoy your posts. Thanks. I can't help being a little self absorbed since money and the type of boats I'm interested are of a lot of interest to me. Yes it is very self absorbed. I am sure however that a lot of others here have had dealt with what I am grappling with. The going back and forth, weighing up the pro's and con's of their boat purchase. And yes the bigger the spend the bigger the issues on all fronts. Just like a sailor would be wise to plot a good course out on the waters even before getting the boat it makes sense to plot your course well ahead. I don't want to run into any unforeseen rocks.

Have a wonderful 2016,
Chaya

[GoingWalkabout]

Originally Posted by WindwardPrinces

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

Please you don't have to get all emotive. We are not talking about a tax dodge. Just plain simple basic accounting that takes into account tax laws.

[GoingWalkabout]

Originally Posted by poiu

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.

Poio, Thank you. Very well stated and pretty much what I woke up thinking this morning. Everything is a matter of trade offs from what I am seeing when it comes to a significant boat purchase. I like the idea of being free from staff. I think a compromise in size and manageability can be found by staying in the 60' to 56' range. Dare I say even the 45" range has its benefits particularly with docking etc. Just on the docking, so as to avoid the need of having someone on board all the time the money I save on not buying say the Seventy7 I could use to buy a berth in Europe and the Caribbean. Like I said there are trade offs and benefits that all need to be weighed and considered. Again thanks for your great input.

Regards and have a great 2016,
Chaya

PS: Your comment about clientes etc rung a bell with me. Reminded me of a business friend who had a large cruiser on Long Island Sound who actually lost customers after bringing them on to his boat for entertainment.

[IntoMyHealth]

We could have purchased a somewhat larger, more expensive boat. Ultimately, we didn't want to think of tax benefits, business risks, mortgages, etc. We sail to get away from all that. And no one comes on our boat that we don't welcome as friends. No, this is our personal space. Our retreat. I understand the mentality as a business owner always being absorbed in maximizing value and cutting costs. But consider this. You've got a nice bag of cash. Take out from it the amount you


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[IntoMyHealth]

you're comfortable recreating and don't give it another thought. My .02.


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[WindwardPrinces]

Originally Posted by Going Walkabout

Please you don't have to get all emotive. We are not talking about a tax dodge. Just plain simple basic accounting that takes into account tax laws.

Setting up a fake charter business to avoid taxes on your regular income isn't simple, basic accounting. It's setting up a tax dodge. Doesn't mean you can't do it, but let's be honest about it. That might not have been the question you originally asked, but that's what some of the advice amounts to.

Oh, and I wasn't being emotive, I was being judgmental. But if you're going to come here asking in a public forum about tax dodges, you have to expect a bit of that. Seriously, that's what you're paying your accountants for. Might as well think this through before you commit to it.

As others have advised, for the same money you can just settle for a little bit smaller boat, and skip the headaches. Isn't that part of why you're asking here, instead of just asking your accountants?

[Lizzy Belle]

Originally Posted by Going Walkabout

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.

Didn't say you were, but what you want to use the boat for seems to depend largely on the taxes involved. You went from advertising to floating office to second home to charter business.
All worth considering - they just don't mix all that well and all I said was that you seem to be considering all options which allow you to avoid taxes, and not so much how to avoid paying too much taxes based on how you want to use your boat.

I also didn't say evasion - which is illegal - but avoidance, which is perfectly legal (and smart).

Originally Posted by GoingWalkabout

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

If I misunderstood the meaning of the above, I am sorry

[skipmac]

Originally Posted by Going Walkabout

Hi Celestialsailor. I too enjoy your posts. Thanks. I can't help being a little self absorbed since money and the type of boats I'm interested are of a lot of interest to me. Yes it is very self absorbed. I am sure however that a lot of others here have had dealt with what I am grappling with. The going back and forth, weighing up the pro's and con's of their boat purchase. And yes the bigger the spend the bigger the issues on all fronts. Just like a sailor would be wise to plot a good course out on the waters even before getting the boat it makes sense to plot your course well ahead. I don't want to run into any unforeseen rocks.

Have a wonderful 2016,
Chaya

If you really want to know the answer instead of just putting a lot of stuff on the forum I made an offer back at post #55.

The company I'm referring to deals with ownership, chartering, tax issues and registration globally and for clients that own genuine megayachts.

[hellosailor]

"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."
So if a boat was used specifically as a horse farm, perhaps because those miniature Shetland ponies are especially fertile while being rocked on the waves, then you'd only need to make a profit in any 2 of the last 7 ? Even better yet! Boys, put some oats on that gangplank! (VBG)

Seriously though...egregious tax codes...I've long said that we need a vastly simplified tax code in the US and a form that says simply:
1) How much money did you make, from everything, last year?
2) Move the decimal point over one.
3) Send in your check for that amount.

Period. Then the only thing up for discussion, is whether 10% is too much or too little, and just how far to shift that number. One size fits all, and the tax accountants all have to go on to new and better things.

Now, do you housebreak ponies at sea? Teach them to do their business overboard? Or, save it and shovel it, WaterWorld style, and use it on the tomato plant?(G)

[brownoarsman]

This guy deducts about a gazillion a year:




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[GoingWalkabout]

Originally Posted by WindwardPrinces

Setting up a fake charter business to avoid taxes on your regular income isn't simple, basic accounting. It's setting up a tax dodge. Doesn't mean you can't do it, but let's be honest about it. That might not have been the question you originally asked, but that's what some of the advice amounts to.

Oh, and I wasn't being emotive, I was being judgmental. But if you're going to come here asking in a public forum about tax dodges, you have to expect a bit of that. Seriously, that's what you're paying your accountants for. Might as well think this through before you commit to it.

As others have advised, for the same money you can just settle for a little bit smaller boat, and skip the headaches. Isn't that part of why you're asking here, instead of just asking your accountants?

Your absolutely correct WindwardPrinces. That is exactly why I'm asking here. This is not a simple equation for the accountants/advisors. This is lifestyle, emotional as well as financial. I don't need to have the biggest house on the street or the biggest yacht in the marina. Comfort and suitability for purpose is what will win at the end of the day.

One of the big things leading me to take a more reduced approach is the warning of an earlier poster about the reality of the charter business. The low number of actual weeks leased out in what he says is an already saturated market with too few charterers available for an excess supply of charter boats gives me a lot of reason for pause. By the way. I am definitely not looking at setting up a sham charter operation. If I went down the owner chartering out to a professional charter company route it would be an above the board and totally compliant arrangement. In my line of business I can not afford to be doing anything shady or even anything that looks shady. Sometimes appearance is even stronger than reality but that is getting a bit off the point.

On the chartering side I also agree with the posters that have said that I should think long and hard about wether or not I want strangers living in and using my pride and joy. I have already answered this for myself regarding a high rise condo I have in Las Vegas that is fully paid for (no mortgage tax right offs) that I could rent out (there is an insight property rental company for that purpose) but I choose not to. I just don't want anyone else messing around in my kitchen with my stuff. And I can't be bothered with packing up all my little and big things and locking them in a closet every time I leave. So while I am missing out on income and not getting any tax breaks I still have the condo and can jump on a plane anytime I like to enjoy life in Vegas. It helps that I have corporations in Vegas that don't pay any state income tax so it kinds of balances out in my mind.

If considered back and forth about the home mortgage deduction path. Kind of a problem since I will be using my own money to buy the boat. I could of course have an inc I own lend me the money (its not difficult to write a mortgage doc) and that inc to have mortgage on the boat that I pay each month or each year. It could be an interest only mortgage so all my payments could go against my earned income tax for deduction. Reading the IRS laws over the weekend I would have to make sure that the interrelated loan was set at market rates. At the end of the day that inc making the loan will receive an income that will be taxable at the corporate rate if that inc doesn't have any other costs that would absorb the mortgage income. I would get the tax benefit against earned income so that will be like the tax will be going to pay the loan interest that goes to the inc. So it will be costing me 0. Except for the tax on the dollars that now are in the loaning/mortgage company inc as received corporate income. Again what I am talking about is not meant to be a tax dodge. Just a simple way of me getting a tax benefit that every body else can easily get who borrows money to by a second home. There are good social reasons for this kind of tax policy by the way. The biggest is that it encourages economic activity. People going out and buying things. It is economic activity that employs people and makes for a healthier economy IMHO.

Now if I was going to be greedy or devious or both I could try and hide my ownership of the lending/mortgage inc. I could also make sure that that inc. is set up in an offshore tax friendly place. To save paying tax on the earned interest on the loan/mortgage payments received each year from me. But that I will never do. That is like going down a rabbit hole into another world of dangers and problems that I don't have the stomach for nor do I think is morally correct. I will pay what I have to pay.

So I'm concluding that a mortgage of some sort that is squeaky clean is preferable to the charter option. I don't have to worry about if Im going to be able to charter out my larger boat. I don't have to worry about other people messing with my things including my solar power system that I will be definitely be going over the top with. And I don't have to worry about suspicion or audits etc. Yes I will probably end up with a smaller boat that will be able to be single handed. I know some won't agree with me but even the Lagoon 62 can be single handed. No staff. No crew unless I want on an ad hoc basis for a long passage or catering for some events with friends. I would be worried about leaving a 62' out on the hook somewhere. Though I have looked into all kinds of water level, smoke etc sensors that can be hooked wirelessly to report to your mobile. Still not the peace of mind I would be happy with though. Which brings me to the boat buying part of where to park the thing. For my ultimate peace of mind I will need to find a marina berth that can be my home base. But then that is another discussion all together.

Thanks everyone for your contributions. It certainly has helped me a lot.

Regards,
Chaya

[belizesailor]

Originally Posted by WindwardPrinces

Setting up a fake charter business to avoid taxes on your regular income isn't simple, basic accounting. It's setting up a tax dodge. Doesn't mean you can't do it, but let's be honest about it. That might not have been the question you originally asked, but that's what some of the advice amounts to.

Oh, and I wasn't being emotive, I was being judgmental. ...

Ive not seen any post where the OP proposed setting up a fake charter biz. In fact quite the opposite, he has explicity stated he is not interested in tax evasion.

So is accusing him of such being emotive, judgemental, or just projecting personal biases?

[WindwardPrinces]

Originally Posted by belizesailor

Ive not seen any post where the OP proposed setting up a fake charter biz. In fact quite the opposite, he has explicity stated he is not interested in tax evasion.

So is accusing him of such being emotive, judgemental, or just projecting personal biases?

Reading comprehension is fundamental. You seem to have missed a few things.

The OP is female. She's the one who used the term "emotive". I used the term judgmental, about myself. Several of the posts in the thread are about setting up a fake charter business with the express purpose of claiming a tax loss.

I'm not doubting the intentions of the OP. She seems like a nice person, and has been fairly straightforward in her questions.

[GoingWalkabout]

Originally Posted by brownoarsman

This guy deducts about a gazillion a year:

Attachment 116128


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That's a big dog. My goodness.

[GoingWalkabout]

Hi Skipmac. I sent you a PM regarding your offer to connect with the expert. Still thankful and still waiting for his/her details.

Regards,
Chaya