LLC,s Best state for sailboat ownership.

[jmschmidt]

An LLC (on any other legal entity) will not give you any liability protection if your use is mostly personal, not for you boat, your car, your house or you bicycle. People seem to think that you can put everything in an LLC or corporation and sit back and suck up pina coladas for the rest of your life, no worries, no taxes, no law suits. I don't know where this myth comes from, too much TV or movies, I guess.

Even if your boat is in 100% commercial use, if you are the operator (master) and your personal actions bring harm to persons or property an LLC will not protect you from squat. In ether case insurance, and lots of it, on you personally, is the only protection. You can't get directors and officers insurance for such an small enterprise at any reasonable price. Also, an LLC, or other legal entity ownership, will bring you tons of extra expense and paperwork just to maintain its existence. Of course you can hire lawyers and accounts to do it for you...for several thousands of dollar a year.

[PiratesTreasure]

We have ours in a Delaware LLC, last year (2017) we were even able to wright off some of the costs from the boat!

[skipmac]

Originally Posted by PiratesTreasure

We have ours in a Delaware LLC, last year (2017) we were even able to wright off some of the costs from the boat!

Would be interested in how this was done. The only way I know to right off any of the costs of something like a boat would be if it is used for some business purpose. Do you use charter your boat or use it for business entertainment with clients?

[ocean.jedi]

Are you planning to operate the boat for profit? If so, state tax laws are important. If not, then is asset protection is your goal. Nevada is good on both, and does not charge sales or use tax if you buy the boat from a private party as opposed to a broker or dealer. There are some yearly fees in addition to the set up costs for the LLC or s-corp, or whatever you are going to do. Get some legal advice if this is important to you.

[Woodland Hills]

Originally Posted by hmarkhoff

Purchasing an existing LLC means that you are purchasing assets and liabilities of old LLC-current and contingent. Not a good idea

It is if you do due diligence. It is not rocket science, LLCs are bought and sold every day without issue. In addition one can have the seller sign a letter of indemnification in case anything comes up from their term of ownership. This is also a good idea when buying a documented vessel as liens can follow the boat. In our case we had both circumstances: a ducumented boat that was the sole asset of a Delaware LLC, so we spent a few boat bucks on professional services in order to avoid $18k use tax. It can be done: it’s a pretty simple LLC compared to buying a running business, something that also gets done every day.

[Capt Jerry]

In making your decision, be sure to check on the annual registration fees. In some states they can run as high as several hundred dollars a year.

[Woodland Hills]

Originally Posted by jmschmidt

An LLC (on any other legal entity) will not give you any liability protection if your use is mostly personal, not for you boat, your car, your house or you bicycle. People seem to think that you can put everything in an LLC or corporation and sit back and suck up pina coladas for the rest of your life, no worries, no taxes, no law suits. I don't know where this myth comes from, too much TV or movies, I guess.

Even if your boat is in 100% commercial use, if you are the operator (master) and your personal actions bring harm to persons or property an LLC will not protect you from squat. In ether case insurance, and lots of it, on you personally, is the only protection. You can't get directors and officers insurance for such an small enterprise at any reasonable price. Also, an LLC, or other legal entity ownership, will bring you tons of extra expense and paperwork just to maintain its existence. Of course you can hire lawyers and accounts to do it for you...for several thousands of dollar a year.

Yearly costs to maintain an LLC are under $200 a year if you are your own agent, add another $75 if you hire a service. Once formed, the annual paper work is minimal to comply with state requirements and the tax implications seem to be nothing my accountant can’t handle. Really, what’s the big deal?

[letsgetsailing3]

Originally Posted by Woodland Hills

Yearly costs to maintain an LLC are under $200 a year if you are your own agent, add another $75 if you hire a service. Once formed, the annual paper work is minimal to comply with state requirements and the tax implications seem to be nothing my accountant can’t handle. Really, what’s the big deal?

It's not a big deal, but it also doesn't buy you much.

[Woodland Hills]

Originally Posted by letsgetsailing3

It's not a big deal, but it also doesn't buy you much.

It buys me an $18,000 use tax exemption. Is that much? When I go to sell the boat it will also buy the purchaser the same exemption, saving her 6% of the sale price.

In reality, the $18k savings was plowed back into the local economy in the form of a new stern thruster, instead of given to the state in taxes. Sort of a win/win for all concerned....

[jmschmidt]

Yearly costs to file state renewals for an LLC are minor, from $13.50 in Hawaii, if you renew online and pay with a credit card, to $300 plus in some states.

First of all there are no tax (or personal limited liability) benefits for an LLC, or any other form of entity ownership for a boat that is primarily for personal use, including live-aboard. Write-offs like the boat's loan interest and personal property tax (if any) perhaps, but you can do that as a "second home" by owning it in your own name.

If your boat is in legitimate commercial use, you may only use it for personal use 14 days per year. Stay on board for 15 days and you get nothing, not even the first 14 days. This is just like a mountain or beach cabin that you rent out during the year. If you rent or charter it for your personal use, or use it for more than 14 days in a year, you must pay the owner (your LLC) the "rack rate" which is the fair market value that commercial customers would pay.

You also must prepare and maintain a complete set of books and financial accounts in accordance with Generally Accepted Accounting Principles (GAAP).

Here's a shocker. If you can't document that you spent at least 750 hours per year working exclusively on managing your LLC and the boat it owns, as a legitimate business for the purpose of making a profit, you may not be able to write off any net losses of the LLC business. This is called "passive activity losses, which must carry forward to subsequent years until you dispose of the activity (meaning sell or sink the boat) that gave rise to the losses. But if your LLC actually makes money (fat chance) you must pay taxes on the profits in a timely manner (quarterly or annually)

And this all assumes your LLC boat business passes the IRS and state tax authorities' requirements as a legitimate business, not a hobby farm, as the tax service guys call them. Good luck.

If your LLC owned boat is US Coast Guard documented vessel you better make sure that your document does not say "RECREATIONAL" on it. These IRS guys are, surprisingly, not stupid. This would be the first thing they will ask to see.

If you haven't spent fifty years doing this stuff like me please get yourself qualified, and I do mean "qualified" lawyers and CPAs. If you think boats are expensive to maintain wait until you have to pay these guys. Good luck.

[hellosailor]

How does having an LLC buying the boat get you any tax exemption?

And the implications of this year's tax law changes, LLC's and pass-throughs and whatever, apparently are giving all the tax attorneys a headache.

Not to mention, I would think that if a corporation, an LLC, owned the boat, you'd need insurance purchased at a *commercial* rate, rather than a personal recreational rate?

[belizesailor]

Originally Posted by jmschmidt

An LLC (on any other legal entity) will not give you any liability protection if your use is mostly personal, not for you boat, your car, your house or you bicycle. People seem to think that you can put everything in an LLC or corporation and sit back and suck up pina coladas for the rest of your life, no worries, no taxes, no law suits. I don't know where this myth comes from, too much TV or movies, I guess.

Even if your boat is in 100% commercial use, if you are the operator (master) and your personal actions bring harm to persons or property an LLC will not protect you from squat. In ether case insurance, and lots of it, on you personally, is the only protection. You can't get directors and officers insurance for such an small enterprise at any reasonable price. Also, an LLC, or other legal entity ownership, will bring you tons of extra expense and paperwork just to maintain its existence. Of course you can hire lawyers and accounts to do it for you...for several thousands of dollar a year.

An LLC, or any other corporate structure, wont protect your personal assets in cases of gross/criminal negligence, but in most other situations it will, regardless of whether the use is personal or commercial. Assets of the LLC are separate from personal assets in the case of legal action/liability...this is one of the fundamental reasons such structures exist.

[Woodland Hills]

Originally Posted by hellosailor

How does having an LLC buying the boat get you any tax exemption?

And the implications of this year's tax law changes, LLC's and pass-throughs and whatever, apparently are giving all the tax attorneys a headache.

Not to mention, I would think that if a corporation, an LLC, owned the boat, you'd need insurance purchased at a *commercial* rate, rather than a personal recreational rate?

When buying an llc the registered owner does not change, it is still the same llc. Thus no use tax is triggered no matter who owns the llc. Our insurance is not affected by the llc, we have policy through the MTOA as recreational users.

[svGenesis]

Sorry for the belated reply.

The reason for an LLC (in this case) is My brother wants 10% ownership, I would also like to protect my 401k as this is the bulk of cruising kitty. My forementioned brother has an existing LLC we can use but it is Texas. I was trying to field real world experience on cost savings for use and taxes. (I know Florida/Texas...ect are 6% sales tax but Delaware is less.) We will base out of Florida initially but probably never longer than a few months at a time. Pretty sure there is a way to do sales tax. (BTW...Gross negligence is what it is) more about dragging, minor mishaps with structures, boats, enviromental ect...

[sailpower]

Originally Posted by svGenesis

Sorry for the belated reply.

The reason for an LLC (in this case) is My brother wants 10% ownership, I would also like to protect my 401k as this is the bulk of cruising kitty. My forementioned brother has an existing LLC we can use but it is Texas. I was trying to field real world experience on cost savings for use and taxes. (I know Florida/Texas...ect are 6% sales tax but Delaware is less.) We will base out of Florida initially but probably never longer than a few months at a time. Pretty sure there is a way to do sales tax. (BTW...Gross negligence is what it is) more about dragging, minor mishaps with structures, boats, enviromental ect...

If you don't pay an initial sales tax then you will have to know the tax laws in each state that you go and be aware how long you can be there without triggering use tax.