Claiming a boat as a business?
Don't let the IRS see you as a target and your boat business as an easy Bullseye.
As a business - or IRS bullseye
Increasingly many boat and yacht owners attempt to subsidize the costs of ownership by claiming a broad range of business tax deductions. Attempting to take a section 179 business deduction seems to be especially popular with some.
But unless your boating venture makes a net profit - the question of just what qualifies as a business eligible for tax deductions is anything but certain - and open for IRS interpretation.
Do you have a marketing plan?
What does your marketing plan say about your "boating business"?
Is it working successfully to generate sufficient income and net profits?
Has your marketing plan recently been reassessed and revised accordingly?
If not, why not?
Corpen is specifically designed for the owners of charter boats with these issues in mind. And as such, is uniquely qualified and positioned to help boat owners by providing additional protection against many potential adverse events and negative consequences.
Obviously making a net profit solves many issues regarding boat ownership. And combined with its team of affiliates, the competitive advantages of a Corpen crafted marketing plan may be the difference between a successful and “profitable” boat charter business and just an expensive “hobby”.
But making a profit is not the only way Corpen can help charter boat owners qualify for business deductions.
Increasingly, when it comes to boat and yacht ownership, “one stop shopping” is becoming a common practice. Frequently in order to close a boat sale, it often becomes necessary to place the boat in a "charter business" where the income and business tax incentives can subsidize the costs of the boat purchase and future operations.
There is a growing cottage industry that sells all sizes and prices of boats and yachts – and obtains inventory for their charter business - by promoting comprehensive boat ownership and yacht charter management packages. Many of these de facto “business in a box” programs go by many names and can be found on line by searching such terms as “Boat as a Business, or Business Boating, etc. But they are essentially very similar to the yacht sale / charter managment programs offered by industry leaders.
As in all industries, some are better than others. But even the best comprehensive boat sale charter business in a box programs have areas they can be improved upon. In fact, in a rapidly changing regulatory and tax environment, the very design of such programs often lag and thus can include some overlooked potential pitfalls.
Corpen was created to fill any such gaps and work with, assist, and compliment the efforts of the better boat business programs and other professional advisors that know it is not all that easy to “legitimately” take business tax deductions for boat ownership. And it grows increasingly more difficult each year.
For example, if a “boat charter business” does not make net after tax profits in 3 out of 5 years, the IRS presumes it is not an actual business with a profit motive. If it is not a business, then the business tax deductions are disallowed.
Consequently, the burden shifts to the boat owner to prove to the IRS and tax court that he is – and has been - actually operating the boat as a business with the intention of earning a profit.
Has your yacht charter “business” made a net after tax profit in each of the last two years?
If not, you need to make a profit this year – or at least make a change. You must do something new that you have not done before, with new advisors to demonstrate your intention to make a profit. You can’t keep doing the same things with the same people, the same way that has not generated a profit in over two years and expect the IRS to see a true profit motive. That is inconsistent with a profit motive.
You may not need to change your current team, but you should certainly enhance it if possible. Corpen is the solution.
The IRS knows that very few boat owners actually make net after tax profits in 3 out of 5 years and have identified boat charter companies as a target for greater scrutiny.
And just to make it more difficult and uncertain – what qualifies as a business is a “moving target”.
While there are general guidelines as to what may suggest a profit motive, there is no universally acceptable definition of what constitutes a profit motive. Thus any determination is subject to interpretation depending on the individual facts and circumstances of the situation and of each individual boat owner.
Activities that might demonstrate a profit motive for one boat owner, might not constitute a profit motive for another.
And even for the same boat owner, what might qualify as a business one year, may not qualify as a business in subsequent years, or even in prior years. It depends on the how the owner operated.
So what does this mean to boat owners claiming business deductions?
If you have a boat / yacht charter business that has not made a net after tax profit after two years – you need to make a net profit for the next three years in a row OR you will have the burden of proving you actually had a profit motive from day one with your boating endeavors.
If you are unsuccessful in convincing the IRS or a tax court of your profit motive from the start, it’s possible your deductions in years one and two could be disallowed and incur additional penalties and interest.
Now as you probably know, since many of the “boat as a business” one stop shops that sell boats to be placed into charter point out, it is not absolutely essential to actually make a net after tax profit three out of five years to qualify for certain tax breaks, one just has to do enough to convince the IRS and a tax court that they were operating with the sincere intent to earn a profit.
Thus as many boat as a business programs are presented, if you buy a boat from the promoter / boat broker, and participate in their business charter management program, you can take the business deductions because they have a carefully crafted program they believe should allow you to do just enough to convince the IRS of a profit motive.
Even though everyone pretty much acknowledges owners of charter boats will probably never earn a net profit, they expect to be able to enjoy their passion for the boating lifestyle at a reduced cost due to the hoped for charter income and the tax subsidies.
On its face, doesn’t that seem a strange way to promote a legitimate business opportunity?
Do you know of any other legitimate profit seeking business opportunities that are promoted in a similar fashion?
Perhaps that may be a reason why the IRS is so skeptical of unprofitable yacht charter operations ever having a true profit motive. And especially so for many of those "business in a box" opportunitities.
So regardless if you are just getting started in a charter boat program or have had a yacht in charter for years, Corpen can help craft a customized marketing plan for you that sends a clear messeage to everyone - customers and competitors- that you are now ready for business!