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Pebbs2200 04-05-2017 16:41

Buying a boat in an LLC
 
Hi,
I'm new to CF and hoping y'all can help.
We're making an offer on a boat that's in a LLC. Is it worth buying the LLC as well? The boat is the only asset. I've done a little research online and have had a brief conversation w/an attorney. What I've learned is that we would save on sales tax but pay $800 a year to the Secretary of State (California). What are the pros and cons? Why is this done?
Thanks!!

Calif.Ted 04-05-2017 16:52

Re: Buying a boat in an LLC
 
People I know have used an LLC when the boat was used for charters due to personal liability concerns.

belizesailor 04-05-2017 16:53

Re: Buying a boat in an LLC
 
Wow, $800 a year...everything is more expensive in Cali.

If you do choose to buy the LLC be sure it is in good standing with the State and has no outstading judgements/liabilties...otherwise you are buying those too! And get a written contract to that effect so you have some recourse if something pops up.

You can of course easily form a brand new shiny LLC and avoid any such surprises. Then buy the boat in the name of the new LLC.

Having the boat in an LLC provides more legal protection in the event of a large liability claim...thats the primary advantage.

How do you plan to use the boat (recreational or commercial)?

Pebbs2200 04-05-2017 17:16

Re: Buying a boat in an LLC
 
We plan on recreational use. Thanks!

belizesailor 04-05-2017 17:22

Re: Buying a boat in an LLC
 
Quote:

Originally Posted by Pebbs2200 (Post 2385865)
We plan on recreational use. Thanks!

Holding in an LLC is not as adventageous for recreational use, but could still provide more legal protection if something bad happened....in the law suit happy USA. A little added piece of mind.

It wont protect you from gross/criminal negligence though...where you personally did something really agregious with the boat...like operated it drunk and killed someone.

Aside from that, generally your other personal assets would be protected.


Do you plan to keep the boat in Cali?

Tayana42 04-05-2017 17:47

Re: Buying a boat in an LLC
 
Avoiding sales tax on a boat in California is a big deal. If the boat sells for say $200,000 USD, 9 percent would be $18,000. Compared to that the annual tax on the LLC is pretty minor.

Pebbs2200 04-05-2017 17:52

Re: Buying a boat in an LLC
 
She would stay in California for about 5-years.
Then it's retirement baby!!
Out the "Gate" to parts unknown.

nematon785 04-05-2017 18:14

Re: Buying a boat in an LLC
 
Why on earth would you buy an LLC? you can create one of your own on your own good time when you feel like it if you want to try to protect your other assets from liability, and you think a pierce cannot be accomplished. also get ready to file extra forms galore come income tax settlement day.

Ignore B.S. about entities and tax structure, you are buying a boat, not a venture...or are you buying a venture?:wink:

Jeezus sales tax should be the big agenda here, that is cash out of your "venture" pocket if you f**k it up!

Worried about liability because someone trips and falls on your boat? "My neck and my back! call an ambulance!" Might as well be worried about all of your properties and get a big umbrella policy, and then begin requiring all crew and guests to sign a liability release and carry their own policies, and submit you a copy of your vessel and entity as additionally insured...Oh my gawd why bother:nonono:

Treat the LLC as the seller. just buy the boat IMHO. LLC better be able to transfer title to you...

nematon785 04-05-2017 18:19

Re: Buying a boat in an LLC
 
Who told you a LLC pays lower sales tax than anyone else? why $800 in fees to register? why incorporate in CALIFORNIA of all GAWD forsaken places!!! who are you talking to? moving on...

I don't know anything, but I know my business runs out of Delaware, not California.

Cottontop 04-05-2017 18:21

Re: Buying a boat in an LLC
 
Two things:

1. Make sure this will really shield sales tax. Some states (and CA is really aggressive) are starting to look thru an LLC whose only asset is a boat or a plane and go after sales tax.

2. An LLC will not shield you from personal liability for your torts. In other words, if you negligently drive the boat into another, causing damage, injury, you will get personally sued. The LLC will also get sued, increasing your legal costs.

CSY Man 04-05-2017 19:21

Re: Buying a boat in an LLC
 
I am selling my boat in an LLC: saves the buyer $9k in Florida sales tax, cost $138 per year to the State of Florida.
Already Documented with the CG as the LLC being the owner.
Good deal. Can't think of any negatives really.

S/V Illusion 04-05-2017 19:27

Re: Buying a boat in an LLC
 
Only two certainties on which you can depend:
1. Don't rely on legal advice from strangers, and
2. Don't ask for legal advice here.

Corrolary to #2 - this forum is full of devious boating advice.

14murs14 04-05-2017 19:28

Re: Buying a boat in an LLC
 
Quote:

Originally Posted by nematon785 (Post 2385902)
Why on earth would you buy an LLC? you can create one of your own on your own good time when you feel like it if you want to try to protect your other assets from liability, and you think a pierce cannot be accomplished. also get ready to file extra forms galore come income tax settlement day.

Ignore B.S. about entities and tax structure, you are buying a boat, not a venture...or are you buying a venture?:wink:

Jeezus sales tax should be the big agenda here, that is cash out of your "venture" pocket if you f**k it up!

Worried about liability because someone trips and falls on your boat? "My neck and my back! call an ambulance!" Might as well be worried about all of your properties and get a big umbrella policy, and then begin requiring all crew and guests to sign a liability release and carry their own policies, and submit you a copy of your vessel and entity as additionally insured...Oh my gawd why bother:nonono:

Treat the LLC as the seller. just buy the boat IMHO. LLC better be able to transfer title to you...

Because no state has a sales tax on purchase of an LLC. Most have a sales tax on the purchase of a boat. If you buy the LLC that contains the boat, the ownership of the boat hasn't changed (it's still owned by the same LLC), so no sales tax is triggered. That can be a significant sum of money saved, that's why!

Paul L 04-05-2017 21:11

Re: Buying a boat in an LLC
 
Quote:

Originally Posted by S/V Illusion (Post 2385950)
Only two certainties on which you can depend:
1. Don't rely on legal advice from strangers, and
2. Don't ask for legal advice here.

Corrolary to #2 - this forum is full of devious boating advice.

And dubious advice

bradfordharley 04-05-2017 21:29

Re: Buying a boat in an LLC
 
I just sold a boat that was in an llc due to the fact that I had it in charter.
In short(as I'm typing on my phone) you need to balance the sales tax savings vs the amount the boat has been depreciated as an asset of the llc. This makes a difference if you ever sell the boat as the difference between sale value and depreciation is capital gains.

I wouldn't by a boat in an llc unless I knew I wasn't going to resell, knew it was not heavily depreciated(unlikely) and wasn't going to charter. My 2 bits.

Pm me if you want me to share my experience.

CSY Man 05-05-2017 03:59

Re: Buying a boat in an LLC
 
Quote:

. I wouldn't by a boat in an llc unless I knew I wasn't going to resell, knew it was not heavily depreciated(unlikely) and wasn't going to charter. My 2 bits.
Now I am really confused, too many negatives make a positive?
Would buy in an LLC if you were not going to charter?

CalmSeasQuest 05-05-2017 04:20

Re: Buying a boat in an LLC
 
Talk to a tax professional familiar with your venue. My tax attorney strongly suggests using an LLC. Not only for some liability protection and potential sales tax savings but; if you still own the boat (or technically own the LLC that owns the boat), it provides additional advantages upon death regarding taxes and avoidance of probate.

captainstubbie 05-05-2017 04:22

Re: Buying a boat in an LLC
 
Well put 14murs14. They would buy the shares of stick in the llc, not the boat...so boat ownership doesn't change. Tax adv or disadv possible for both sides...depending on several tbings...

captainstubbie 05-05-2017 04:22

Re: Buying a boat in an LLC
 
Stock

denverd0n 05-05-2017 04:50

Re: Buying a boat in an LLC
 
Quote:

Originally Posted by S/V Illusion (Post 2385950)
Corrolary to #2 - this forum is full of devious boating advice.

Devious, and in a lot of cases just plain wrong! I would be talking to an attorney who is experienced in these matters, not a bunch of strangers on an internet forum.

Internet legal advice is worth exactly what you pay for it -- NOTHING!

Pebbs2200 05-05-2017 09:14

Re: Buying a boat in an LLC
 
Thanks everyone!

Scot McPherson 05-05-2017 09:26

Re: Buying a boat in an LLC
 
buy the boat...if you want to put it into an LLC, you are better doing it on your own. Without hiring an investigator, you really will not know what you are buying when you buy a company. It's called Due Diligence....do your Due Diligence...or just buy the boat and start your OWN LLC, that you know is in the free and clear if that's what you want to do.

Tom_F 05-05-2017 09:43

Re: Buying a boat in an LLC
 
If you're serious about keeping this in an LLC, you really need to consult with a California lawyer about this. I'm NOT a CA lawyer and you're not a client and we are not establishing an attorney-client relationship by this communication (sorry, I have to include that disclaimer even though I think it comes across as somewhat obnoxious), so this is just general observation and advice, but in most states whether you are shielded by the limited liability afforded to an LLC may determine whether your LLC is adequately capitalized. In addition, there are usually additional hoops you need to jump through so that you keep your personal affairs separate from your LLC's affairs. For example, CA may require that the LLC pay all of the maintenance and non-operating expenses for the boat, so all improvements, maintenance, equipment replacements, etc. may require you to first make a capital contribution to the LLC and then have the LLC pay the costs out of its funds and its own separate bank account. That also means you likely need to pay the operating costs out of your pocket and not from the LLC's funds. If you pay your local chandlery by personal credit card and not a credit card issued to the LLC more that just rarely for non-operating expenses, you may not get the liability limitations you think. Plus, again to keep your affairs separate from the LLC's, you may need a bareboat or other charter agreement in place. Is that worth the savings? I guess it depends on your financial situation and whether CA will nail you for the sales tax anyway when you change the address on the registration.

You really need to get advice from a qualified lawyer or other professional licensed in CA. Good luck!

Tom

CSY Man 05-05-2017 10:04

Re: Buying a boat in an LLC
 
Quote:

Originally Posted by Scot McPherson (Post 2386295)
buy the boat...if you want to put it into an LLC, you are better doing it on your own. Without hiring an investigator, you really will not know what you are buying when you buy a company. It's called Due Diligence....do your Due Diligence...or just buy the boat and start your OWN LLC, that you know is in the free and clear if that's what you want to do.

Yeah, but then you loose the sales tax savings :frown:

marty9876 05-05-2017 10:08

Re: Buying a boat in an LLC
 
I had this option, was recommended not too as your getting what depreciation they had already taken.

Kenomac 05-05-2017 10:44

Re: Buying a boat in an LLC
 
Quote:

Originally Posted by nematon785 (Post 2385904)
Who told you a LLC pays lower sales tax than anyone else? why $800 in fees to register? why incorporate in CALIFORNIA of all GAWD forsaken places!!! who are you talking to? moving on...

I don't know anything, but I know my business runs out of Delaware, not California.

If one lives in California, there isn't a choice. Form an LLC or pay the tax. California doesn't care where you document the boat, as far as the state is concerned, if it's in Cali you owe Cali.

jmschmidt 05-05-2017 13:14

Re: Buying a boat in an LLC
 
You can set up an LLC to own your boat in any state you want and paint any hailing port on the stern you want. All owners of the LLC must be US citizens if it's a US flag vessel. I assume it is US flag. You may or may not beat the California tax collectors if you are a California resident. If the boat never enters California you are in a better position tax wise, maybe. Don't use a California LLC for anything. Use Nevada, Wyoming, Alaska or Hawaii. In fact don't even live in California, my son is moving himself, his girlfriend and his two boats to Texas. Get out now before they pass a law against leaving the state.

nextis12 05-05-2017 13:21

Re: Buying a boat in an LLC
 
Quote:

Originally Posted by marty9876 (Post 2386349)
I had this option, was recommended not too as your getting what depreciation they had already taken.

You should'ent lose out on any depreciation. Assuming it's a charter business your deperciable basis would be based on what you paid for the LLC, the amount paid would be allocated to the boat and depreciated.

If for pleasure then the amount paid to buy the LLC would be your basis, if sold for more then what you paid you would have a gain. But who sells a boat for more then originally paid???

f you buy the LLC and not the boat, then there is no sales tax, strikes me as a good idea. In CA you would have to pay $800 a year for the LLC, so depending on the sales tax amount maybe not...?

Pebbs2200 05-05-2017 15:47

Re: Buying a boat in an LLC
 
Thank you all for your input. We're looking at the pros and cons and of course we'll be talking to an attorney and an accountant. We had never heard of this and I'm glad we asked y'all.

captainstubbie 05-05-2017 15:59

Re: Buying a boat in an LLC
 
Good luck! Fair winds!!

LJsail 05-05-2017 16:22

Re: Buying a boat in an LLC
 
I am not a lawyer and am not in California. However, where I live, I have always been advised that it is better to buy the assets of an llc rather than the llc itself. Buying only the assets protects you from the unknown liabilities of the llc. If the same is true there, it would seem imprudent to take on that risk to save a few thousand dollars, no matter what your financial situation (even if you have no assets other than the boat, the boat is owned by the company, and would be fair game in any lawsuit).

nematon785 05-05-2017 16:26

Re: Buying a boat in an LLC
 
Quote:

Originally Posted by 14murs14 (Post 2385951)
Because no state has a sales tax on purchase of an LLC. Most have a sales tax on the purchase of a boat. If you buy the LLC that contains the boat, the ownership of the boat hasn't changed (it's still owned by the same LLC), so no sales tax is triggered. That can be a significant sum of money saved, that's why!


Ok, so the purchase of the LLC is essentially tax free. I guess I can ensconce all of my assets within an LLC and begin sales tax free transactions with anyone. good to know.

So the best way is to create a LLC, transfer assets to it (not sure how, but I guess pretty easy there) then I can sell any property and the buyer is immune to sales tax and liability! OUTSTANDING thread! this is the greatest legal and Tax advice for free ever given.

I will point out even AL Capone had to pay his taxes, the hard way.:thumb:

So now my question is drilled down to its essence:

When I buy a limited Liability Corporation, what exactly am I buying? Am I buying a business? Am I exposed or totally immune to any risk? Do the assets become MY property? How do I file income tax on April 15th? Who do I insure the vessel under? me or the LLC? am I allowed to drive the LLC's boat, or do I need to be an officer of the company... When I moor the vessel, who's name is it under? Who's name is the insurance under? when I enter mexico how do I show ownership and registration is in fact entitled to me as the skipper when I enter customs? If I decide to sell the vessel ( Whoops I mean if the LLC decides to sell some of its assests) how is that handled? who represents the LLC? How do I title a vessel in an LLC's name? How does the LLC report income tax from guest charter of the vessel? is it a gift that we? can use it or should I plan to pay the charter rate to uit the insurance company, and list myself as an employee of theLLC, who pays me as an employed staff member, covering payroll and workmans compensation and I pay income tax on my salary? Should I carry my own liability policy and list the LLC as additionally insured?!!! If the vessel collides with another, who responds to the claims made by the aggrieved vessel? The LLC attorney on retainer presumably, or can I answer the call on my cellphone?Should the tender be registered and owned by my phantom corporation as well? If I have work done at a yard, do I need to make sure the corporation is listed as an additionally insured on the contractors liability policy? should the contractor have workmans compensation insurance and carry a professionally registered license? when I pay him, are the checks written from an account with the LLC as the signor?!!! Should I hire a bookkeeper to manage my new business/entity?

I am curious, and would really like to benefit from the vast inside business knowledge base available here:smile:

sailpower 05-05-2017 17:21

Re: Buying a boat in an LLC
 
Quote:

Originally Posted by Kenomac (Post 2386377)
If one lives in California, there isn't a choice. Form an LLC or pay the tax. California doesn't care where you document the boat, as far as the state is concerned, if it's in Cali you owe Cali.

Not exactly.

If the OP buys the LLC that owns the boat, ownership of the boat has not changed so no tax due. Potential existing liabilities would be the con.

If the OP sets up a new LLC and buys the boat from the existing LLC then ownership has changed and sales taxis due.

belizesailor 05-05-2017 17:29

Re: Buying a boat in an LLC
 
Quote:

Originally Posted by Pebbs2200 (Post 2386565)
Thank you all for your input. We're looking at the pros and cons and of course we'll be talking to an attorney and an accountant. We had never heard of this and I'm glad we asked y'all.

As another post advised, seeking pro help is the best option.

We can offer anectotal opinions and experiences but only a pro in CA who knows the details can offer solid counsel.

CaptRory 05-05-2017 18:41

Re: Buying a boat in an LLC
 
There are advantages in liability issues in that it separates your business from your personal life. If the company is sued, it's only asset is the boat not your other life. But the main reason one uses an LLC is for a tax shelter. I live in Florida, where I had my accountant set up the LLC that bought my boat. It's not a lawyer that you need, it's an accountant who knows what they are doing. In Fla it's only about $250 a year to the state. I actively chartered for the first two years. You can depreciated the boat and write off EVERY penny you spend on it. The business looses money and being a "pass through corporation" your loses go straight on to your 1040 against your gross income. After doing this shelter for 5 years, I dissolved the LLC (reason- not profitable) and changed the registration on the boat over to me personally. To do this without paying sales tax, you must dissolve the corporation first. If you re-register it with out dissolving the LLC you will have to pay sales tax. The nice lady at the DMV saved me from that mistake. You must take them your dissolution paperwork. I cannot overemphasize the importance of an accountant that is familiar with boats and chartering to set it up and do your taxes. He cost me about $400 a year. I would do that and let your business purchase the assets of his rather than purchase the business and it's asset from him. Just to keep it clean with no surprises. You will also need a business related insurance policy that is about 50% more expensive. Repeat after me....Good Accountant.

nematon785 05-05-2017 19:05

Re: Buying a boat in an LLC
 
Yer accountant just files yer tax forms. Yer bookkeeper sets it all up. unless you like to pay the accountants hourly rate all year long to hold your hand. Your Attorney advises you, and points you towards the most positive outcome and protects you if liabilitay appears, that is if he does not go bankrupt himself in the mean time. Get enough people involved in the management of your assets and you may come across one or more lie to you or progressively assigns a bunch of your assets to themselves, but we know all attorneys and finance people are looking out for your interest before their own right? They all just want to see you succeed, and will work endlessly pro bono to make it happen.

Keep a boat in Cali for a while and the tax man commeth. He does not care what your clever LLC arrangement is, he wants his money, and he is hardcore. Very serious and scary official letters chasing you all over for years as you try to sail away...They go down to the docks and personally record hull numbers, interview harbormasters about time spent at moorings, they are aggressive. better be real serious if you want to play the game with these guys. just sayin...

I'm sure it will all work out. Why not build in a bunch of complication where it is not needed, and pay a line of people with their hands out to create a complex entity owned asset solitary company who only has interest in making its assets and profits available to you for no charge or risk? I guess if you are already well established doing this sort of thing with several other ventures such as businesses and appartment buildings and construction companies buying a boat would be old hat, and fall right into your empire.

To begin your empire with a boat purchase? maybe not so clever. :rolleyes:

CSY Man 05-05-2017 19:48

Re: Buying a boat in an LLC
 
Quote:

. You will also need a business related insurance policy that is about 50% more expensive. Repeat after me....Good Accountant.
Good a good accountant.
As for insurance, my boat is insured with the LLC as the owner, no problem there.
Found Yacht insurance allowing 24 charters a year to be only $174 more expensive per year than regular pleasure insurance. Shop around.
Most if not all commercial boats are Documented and owned by corporations, nothing new here.
Tax benefits, legal protection, monetary protection, etc.
Don't see what all the resistance to an LLC owning your boat is?
(I only know about Florida, seems to work for me. No idea about California)

CaptRory 06-05-2017 10:26

Re: Buying a boat in an LLC
 
California has state income tax so may be some different rules. A good accountant will keep you square with the taxman. Do your own book keeping, take it to your accountant at tax time, which is February since corporate taxes are due in March. It's not a big deal. BTW... as a NATIVE ANGELENO I have some advice. Don't use the term "Cali", it makes people think you are not very bright. And if you use "SoCo" for Souther California, they'll know it for sure.

marlin driver 06-05-2017 12:37

Re: Buying a boat in an LLC
 
Quote:

Originally Posted by nematon785 (Post 2386693)
Yer accountant just files yer tax forms. Yer bookkeeper sets it all up. unless you like to pay the accountants hourly rate all year long to hold your hand. Your Attorney advises you, and points you towards the most positive outcome and protects you if liabilitay appears, that is if he does not go bankrupt himself in the mean time. Get enough people involved in the management of your assets and you may come across one or more lie to you or progressively assigns a bunch of your assets to themselves, but we know all attorneys and finance people are looking out for your interest before their own right? They all just want to see you succeed, and will work endlessly pro bono to make it happen.

Keep a boat in Cali for a while and the tax man commeth. He does not care what your clever LLC arrangement is, he wants his money, and he is hardcore. Very serious and scary official letters chasing you all over for years as you try to sail away...They go down to the docks and personally record hull numbers, interview harbormasters about time spent at moorings, they are aggressive. better be real serious if you want to play the game with these guys. just sayin...

I'm sure it will all work out. Why not build in a bunch of complication where it is not needed, and pay a line of people with their hands out to create a complex entity owned asset solitary company who only has interest in making its assets and profits available to you for no charge or risk? I guess if you are already well established doing this sort of thing with several other ventures such as businesses and appartment buildings and construction companies buying a boat would be old hat, and fall right into your empire.

To begin your empire with a boat purchase? maybe not so clever. :rolleyes:

Owning a boat in an LLC isn't rocket science. You obviously haven't had positive experiences using professional services, but many of us have fared much better.

Buy a $300K boat in CA and you pay $24K in sales/use tax. Buy the LLC that owns that boat and you pay no tax on the purchase, but it costs you $800/yr for the LLC. Which do you prefer? It is legal and not complicated. Your comments about tax officials walking the docks is relevant to personal property tax, which is paid at roughly 1% of the boat value ($3K per year in our example). That is paid regardless of how you hold title to the boat, as long as it resides in CA.

For a boat with substantial value, buying the LLC that owns it is a big bonus due to the tax savings. Selling that LLC and boat to a knowledgable buyer can bring you a premium for the same reason. The liability protection debate is not as important to me because I carry plenty of insurance coverage.

The LLC that holds the boat exists to hold the boat and has no other assets or business, so there aren't other issues to complicate things.

I also hold investment properties in LLCs and limit each entity (LLC) to a single property for these reasons. Very common arrangement and entirely legal, including from a tax standpoint.

You might consider saving your criticism for topics on which you have some knowledge.

bradfordharley 06-05-2017 13:06

Re: Buying a boat in an LLC
 
Quote:

Originally Posted by marlin driver (Post 2387161)
Owning a boat in an LLC isn't rocket science. You obviously haven't had positive experiences using professional services, but many of us have fared much better.



Buy a $300K boat in CA and you pay $24K in sales/use tax. Buy the LLC that owns that boat and you pay no tax on the purchase, but it costs you $800/yr for the LLC. Which do you prefer? It is legal and not complicated. Your comments about tax officials walking the docks is relevant to personal property tax, which is paid at roughly 1% of the boat value ($3K per year in our example). That is paid regardless of how you hold title to the boat, as long as it resides in CA.



For a boat with substantial value, buying the LLC that owns it is a big bonus due to the tax savings. Selling that LLC and boat to a knowledgable buyer can bring you a premium for the same reason. The liability protection debate is not as important to me because I carry plenty of insurance coverage.



The LLC that holds the boat exists to hold the boat and has no other assets or business, so there aren't other issues to complicate things.



I also hold investment properties in LLCs and limit each entity (LLC) to a single property for these reasons. Very common arrangement and entirely legal, including from a tax standpoint.



You might consider saving your criticism for topics on which you have some knowledge.



Agreed with marlin. I've also have had 2 boats in an llc in California. Just beware of depreciation and section 179. Obviously talk to a tax guy.


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