Tax Questions: Boat Deductions

R

redbaronace

New member
Wanted to ask if there were any tax folks on the forum that might be able to answer some questions regarding deductions and boating.

I do realize that the IRS does allow one to count a boat as a 2nd home provided that it has sleeping area, cooking, and bathroom facility. Most c-dorys 22' and above have that. Also I heard that if a person sleeps 14 days per year or more onboard, it qualifies though that requirement is somewhat loosely checked.

My question, is whether many or most folks here are using that deduction. Also, is this primarily only useful if the person has a loan (to write off the interest). What if the boat is owned outright?

Next, I do use the boat to take clients out on day trips. Sometimes it is cruising and oftentimes fishing. My question, is how do I write these expenses off for fuel, food, ice, bait, transient moorage, etc.

Lastly, what else can be written off without causing undue attention from the IRS. Please feel free to respond here, or via PM if you don't prefer to answer publicly.

Thanks so much.
 
I am not a tax person, but it is my understanding that it is the interest paid on a loan on a first and second home mortgage that can be used as a deduction on an itemized tax return. I think your CD could qualify as a second home. (just like an R/V). If you are using the boat for any business purpose that involves passengers, you are legally required to have at least a 6 passenger USCG licenses. If there are more than 6 passengers aboard you would also need to have a USCG certificate of inspection on the boat and a higher level operators licenses. I'm also sure liability insurance would become an issue if anyone was ever injured aboard and your insurance co questioned if the boat was being used for business purposes. I believe that if you are in business, you can deduct certain business expenses from your profits on that business. That question would need a professional answer.
 
I believe the uninspected passenger vessel (or 6 pack) refers to vessels for hire. You are receiving no money from the passengers.
ection 2101 of title 46 (5a) defines “consideration” as an economic benefit, inducement, right, or profit including pecuniary (fancy attorney word for money) payment accruing to an individual, person, or entity, but not including a voluntary sharing of the actual expenses of the voyage, by monetary contribution or donation of fuel, food, beverage, or other supplies.” Additionally, employees or business clients that have not contributed for their carriage, and are carried for morale or entertainment purposes, are not considered as an exchange of consideration."
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You must have a "reasonable expectation" of deriving income or other benefit in the future as a result of your use of the boat. You must actually engage in business discussions while onboard, with the main purpose of the boat to transact business.

My interputation of this (and my accountants in the past) has allowed me to take actual expenses--fuel, food, ice, a % of maintenance etc. You need to make detailed and careful records, as to what business was discussed and how it benefits your primary business. However I would agree--you need to detail this with your accountant.

I have also taken expenses for charity events, where there was no benefit to me, but to the charity which I was providing a service. I made sure that this was a 501 C 3 and that there was a written specific request for my co-operation, and the reason that this voyage was a benefit to the charity. In that case only the actual operating expenses--and a detailed record was kept.

Finally, if you have a marine business, there is the potential for using your boat as a test or demonstration platform. Friends who are sailmakers or who build marine parts; such as fittings, winches, props etc, have been able to write off a certain part of their boating expenses.
 
This is sort of related to tax deductions. In some states (e.g. VA) if you buy your gas at a regular gas station (not the fuel dock) you can get a refund of the road use taxes included in the gas price since you are not using the gas in a vehicle that abuses the road.

You have to keep the receipts and file a claim with the state at the end of each year. If you buy gas in multiple states you have to file in each state which allows this refund.

If you boat a lot in one area this might be worth the trouble to do. If you travel around a lot filing all the individual claims may not be worth it.
 
Thanks for all the responses thus far. I would like to bring current clients and business prospects for future business aboard to discuss real estate and investing.

My profession is a real estate agent and my hope is to use the boat to spend time with my clients similar to how someone might take a client to a baseball game, out to dinner, or golfing. The purpose is business relationship and discussion. The entire time will not be 100% business. I will not be charging clients to come aboard.

The boat will also be used by family the other 70% of the time. Not sure how this impacts tax.

Thanks,
 
To write off interest on your boat loan as a second home, ask your CPA.

I do not believe one can use their personal boat, even if it qualifies as a second home, for business write offs any more than if you took your clients to an actual shoreside second home and entertained them there.

The only way I know to write off expenses (even depreciate the hull value) for a boat is, like said above, to have the boat used in a bareboat charter (or some other) business with clear profit intention. I have done this. IRS likes you to make money so it can tax you more. IRS does not like you to write off expenses for something that does not make money. And, doing this, you may be limited to the amount of time you can spend personally on your business boat. In my circumstance, IRS allowed me 2 weeks/year of personal use. Uh huh. And...

Aye.
 
Foggy,
I refer you specifically to IRS Publication about entertainment:
http://www.irs.gov/publications/p463/ch02.html

Specifically:
What Entertainment Expenses Are Deductible?

This section explains different types of entertainment expenses you may be able to deduct.

Entertainment. Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. Examples include entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; on yachts; or on hunting, fishing, vacation, and similar trips.
Entertainment also may include meeting personal, living, or family needs of individuals, such as providing meals, a hotel suite, or a car to customers or their families.
A meal as a form of entertainment. Entertainment includes the cost of a meal you provide to a customer or client, whether the meal is a part of other entertainment or by itself. A meal expense includes the cost of food, beverages, taxes, and tips for the meal. To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided.
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There are a number of rules--but taking advantage of these to minimize your taxes are fair game. Redbaronce would need to read the specifics about these, but it is clear that yachts and fishing are specifically mentioned. So are vacation homes.
 
The 2nd home deduction is pretty simple and will save you some money if you have a loan. I have used it in the past and even had it rejected/checked/permitted by the IRS with success. The equipment requirements are very vague and even many boats could make the cut with some simple camping accessories used.

The IRS does not normally get a standard tax statement on a boat loan so when you claim the deduction, they don't necessarily see any default record of that on their side and that can cause a check. Once supplied again with docs and support info they are happy.

I don't use a boat for business but we have used ours for non-profit work and that relates to deducting fuel use on land and water plus any related launching or parking fees as well. We keep a log of those expenses and activities by date for our efforts. They really can add up and as a side benefit, you get to do more boating so long as you make the time.

Greg
 
thataway":1ebt4oyq said:
Foggy,
I refer you specifically to IRS Publication about entertainment:
http://www.irs.gov/publications/p463/ch02.html

Specifically:
What Entertainment Expenses Are Deductible?

This section explains different types of entertainment expenses you may be able to deduct.

Entertainment. Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. Examples include entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; on yachts; or on hunting, fishing, vacation, and similar trips.
Entertainment also may include meeting personal, living, or family needs of individuals, such as providing meals, a hotel suite, or a car to customers or their families.
A meal as a form of entertainment. Entertainment includes the cost of a meal you provide to a customer or client, whether the meal is a part of other entertainment or by itself. A meal expense includes the cost of food, beverages, taxes, and tips for the meal. To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided.
Click to expand...

There are a number of rules--but taking advantage of these to minimize your taxes are fair game. Redbaronce would need to read the specifics about these, but it is clear that yachts and fishing are specifically mentioned. So are vacation homes.
Click to expand...

Thanks, for the information. Even with this, I am not completely clear on rules and whether there are exceptions. For instance, If I took my client to a restaurant or Seahawks game, I would have a bill, ticket stub, or receipt from an establishment not owned by me. The boat is owned by us, so I didn't know if this was somehow different. We have also had clients over for dinner in our home many times and never expensed that even when its purpose was business related.

My CPA is not real clear how this works even as I told him that boats are expensed regularly in business.
 
My accountant told me that the little amount to be saved on taxes through any of the allowances in tax law is far offset by the red flags that are set to trigger audits. So, he strongly suggested the "second home" as an RV or boat is very difficult to defend during an audit. The record keeping alone to defend the use for business is likely, in most cases, not going to produce enough savings to be worth the headaches.

Now, if you are talking a mega yacht, (which is most likely a place where business is often conducted), then it may be worth what you can get back. But then if you own a mega yacht, you probably have some IRS agents on your payroll and are safe anyway.

I choose to be very conservative when it comes to home business, second home, etc. I went through one audit, and never, ever, want to see another.

Tax laws are so complex and subjective that you jez gotta be careful. The complexity of the tax laws are essentially extorting my probable small over payment of taxes by scaring me into not dinking around with marginal deductions.
 
Opinions vary on this and provide interesting reading.
Keep in mind what was said about "opinions" (like armpits, you have one tho it may smell...).
Consistency in ruling on taxation to individuals is not a hallmark of the IRS.
The safest thing I found was to rely on a CPA professional who was well versed on boat matters
related to business, taxation, expenses, etc. This was a guy who gave advice based on his own positive
experiences with the same.
Best advice; it worked for me:
You do not want to get into the IRS radar and be labelled a violator.
You do not want to give the IRS your money as a free loan by paying them too much too soon.
You do want to take advantage of the "grey areas" within the law and end up owing Uncle Sam
a little at the end of the year.
The trick is in the knowing...

Aye.
 
Although I doubt that anyone has IRS agents on their payroll (except maybe politicians indirectly), some accountants are on the IRS Radar, and others are not. I had the anent who who was in charge of the Los Angeles area as a patient. I had been audited 3 years in a row. All were over minor issues which were resolved with a few dollars in the end. I told him the name of my accountant, and he shook his head. I changed accountants, and the audits stopped. I currently have an accounting firm which rarely has its client's audited. However we have gone to tax court on some issues, and won. IRS is a huge bureaucracy, and often mistakes are made. Also when I find some egregious activity by IRS, I contact my congressman, who gets one of the IRS advocates to review the issues--always come out in my favor.
 
Always in the light.*
That's where you want to be.

Aye.

*Seems strange in this Universe; light is the exception,
darkness is the rule.
 
The second home deduction is only for interest expense, so you need a loan. HOWEVER, since the boat is a second home, it does qualify for the energy credit, hence our new solar panel will qualify.

As far as business expenses, documentation is the key, and recordkeeping! You'll have to keep track of all your boat expenses and days used (for personal or business), and then, MAYBE, your accountant MIGHT be able to extrapolate some costs that could lead to a deduction.

I think its best to talk to your accountant first and find out what his stance would be on it; what records etc he will want you to keep. I used to be a CPA... I know whereof I speak when I say that every accountant will give you slightly different "rules" to follow for what they feel they will need to defend you.
 
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