Is anyone expensing their boat?
 

Is anyone expensing their boat completely? My accountant tells me that to totally expense my boat I need to compete. I am also told that poker runs are not competing. Is anyone expensing more then gas, a few repairs and entrance fees to a charity event (poker run)? If I had a car and took it to the track every weekend to compete I could expense that. I feel like there must be a way. Maybe it’s just wishful thinking, but I have to ask everyone before I give up trying.
:readinghelp:

biggest problem with expensing vehicles (boat, cars) is that if you expense it completely, then sell the vehicle, you have to recapture the sale as income. The tax man will get you in the end, expensing only delays the tax occurance.

Thanks for you input. Is it possible to lease it with a $1 buy out? at the end of the lease it doesn't have any value and maybe easy to hide the sale?

I expense mine as a 2nd home. As long as you have a sink, potty, place to sleep, and means to cook,, you can wright it off. I also (at the advice of my accountant) write off my vehicle mileage to PR, as most (that I attend) are for charity.

Ona-Mission,
Gov't just changed near zero cost leasing rules in '07 I believe.(1$ buyout). There is an excellent way to expense boats however according to an accountant who gave an in depth presentation at my company a few years ago. He detailed the then current IRS rules applying to "second residences". As I recall there were requirements about sleeping quarters, toilet/bathroom/head, cooking area etc. Might be worth looking into; don't see a real problem with delaying tax consequences until we're in a better bracket (older). Dean5127 who's normally a regular poster here on OSO (tax season right now) could probably shed some light on this. Best luck to you. -Jeff

I think the second home classification allows you to right off the intrest paid on the boat, not expense it, providing it meets certain IRS ctiteria.

I am not a CPA, but had lenghty discussions with my CPA on ways of making my toys work harder for me. Again these work mostly as delay tactics, with the hopes of being in a better tax situation when they catch up with you.

Far smarter men than I have tried to out fox the IRS, and they have seen just about every trick in the book.



i

I don't know how this applies to a go fast, but our CC is a charter operation. Whether it looses or makes money doesn't matter, you write 100% of expensives off same as you would if you were an owner operator with a truck.

If you had a Capt license I guess you could charge your guests, show some income and therefore be entitled to the write-offs?

I am not sure what exactly you are referring to when you say expensing. If you have a head, a bed, and a galley, you can write off the interest on the boat as a second mortgage. However, you can only write-off interest on two "homes".

The biggest issue to overcome when writing off acutal expenses, ie. gas, maintenance, etc., is proving that you truly have a business (ie. profit motive) rather than a hobby. I don't think you could convince an IRS agent that you enter poker runs to make a profit. I prepare the tax returns for an offshore race team and we sucessfully argued with an IRS agent that there was a profit motive and it wasn't a hobby, but the operations must be set up correctly.

Bottom line, most boating activities are hobbies. Any reducing in your tax liability by deducting your boating expenses can easily be eaten up in professional fees to defend your case and there is no guarantee of winning the argument. It's probably not worth it.

My boat is used for entertainment so i can write off the expenses. It is almost depriciated out which is one of the reasons i put it up for sale. but anything that i sell it for over what it is on the books for i have to pay capital gains.

you just have to work the numbers when you sell it

Plus you have to keep a record to prove it was just for entertaining clients and not for personal use

Meals and entertainment expenses are only 50% deductible. If you are taking clients out for entertainment, your tax preparer should only be deducting 50% of the total expense.

To avoid paying tax in the year of sale on the gain on the sale of the boat, it may be worth it to do a like-kind exchange. It doesn't avoid the tax liability, but it defers it to a later date. You can keep doing like-kind exchanges and defer the income for a number of years.

Capital gain or income?

If you used it as a rental with a rental co you could.Start a rental company and open a bank account.Have people you know rent it from you for what ever you want and have them pay with check and deposit it into your account but not really let them use it.Give them the money back out of a different account.Use the rental account for all your boating costs,repairs,transport,gas etc.Then you could write off all your expenses.One step better is get a captains license and do the same as a charter co.

The IRS loves it when people f-around with boats. They should just have a box on the form that says "boat owner wishes audit".

If you want to do anything more than deduct mortgage interest, you'd better be 100% clean and legit- or be prepared for audit, back taxes, fines & interest.

I don't know about boats, but "what if" when you sell a truck or car the buyer writes the check out to you and not the company and you cash it at their bank. If the vehicle is completely depreciated and you don't do it often would that help? The check or checks would have to be under $10,000.

Yup that is my understanding of it as well. Unless you are in the marine bus. then you are likely to pull and audit.....

You can depreciate things down to zero if you want. It depends on the guidelines set forth by the IRS as to how fast you can do that. If you sell it as private then you would still have to account for the inventory some how.

Yep 100% true!

Also there was a form on a past thread about being able to write off your gas tax...well I printed this form and took it to my accountant for my business and found out the only way to write off gas and other expenses is for the boat to make money and you have a captain license. He also said this would for sure through a red flag and get you in trouble.
I use my boat as a 2nd home on the weekends. It has a COVERED sleeping quarters, shower, flush out head, sinks and cooking facility's.

There is a fine line between tax avoidance and tax evasion.

Audit for Tax Avoidance: Expensive attorneys and accountants trying to explain your justification for the deduction.

Tax Evasion: Expensive attorneys and accountants explaining why it was an innocent oversight on your part. Tax plus penalty.

The government needs money than ever. The Dems get the White House and keep congress the witch hunt will be on for every dollar you can't afford to give up.

My understanding is you can write-off the interest component if you claim the boat as a second residence pursuant to it meeting the very grey requirements of the IRS code surrounding interest paid on Boats, as outlined in Publication 936:

Qualified Home
For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. This means your main home or your second home. A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities.

The interest you pay on a mortgage on a home other than your main or second home may be deductible if the proceeds of the loan were used for business, investment, or other deductible purposes. Otherwise, it is considered personal interest and is not deductible.

Truthfully, I think the best and safest bet, is to have the boat on an equity line, use the equity line for your boat gas, insurance, etc... and let your cash go elsewhere. Therefore, if you have an equity line that is at prime, or prime minus (mine is prime minus .5), then you are paying 4-5% interest on the line less a net tax effect equivalent to your tax rate - say 30%. At that point you are paying essentially 2.8% interest (4%*(1-.3)), and if you can't use your cash to make more than 2.8% you are doing something wrong. This also lowers your adjusted gross income and hence your tax liabiility.

My .02 - I hate debt, but like it or not, it doesn't hurt to "play" with someone else's money.

Eric

Unphuckinbelievable what I'm reading. My family has been in the tax business for 30+years. We have never once written off a boat.............maybe the interest expense and thats a stretch.

Gas/repairs for poker runs as charity is retarded. What benefit does a charitable organization receive by you filling up your tank with gas? Wake up people.

Just double checking here but you aren't talking about reimbursement for the road tax piece of the gas taxes paid are you?

I know in Virginia you can submit a form with your receipts for fuel consumed by non-highway vehicles and receive the "road-tax" piece of it back - I believe it is roughly 18.8cents per gallon. Since we are not using the boats ON the road you are entitled to this amount back. The form even has a place for your CG Reg # and Boat name. Don't know how it is in your state but there is NOTHING questionable about that.

Remember.......you can only deduct interest on the first $1.1M of the loan(s).

I'm 27 - not a real big issue for me but yeah I did know there was a ceiling on it.

Yes that is what I am talking about and unless you make money with your boat....it;s not a pleasure boat and you're a licensed captain you can not take advantage of this....or you can lie about it and get a nice sudit from the IRS.

I know I can't believe it either. I showed this thread to my accountant and he just shook his head. My account is really really good but we do everything legal too.

Also I am amzaed at what people on the forum do for boat insurance. More than 1/2 of them would not be insured if they had a claim.

This is not true. It is perfectly legal to get your road tax reimbursement back in Virginia. I do it every year.

For every gallon of fuel sold in VA, there is a tax of roughly 17.5 cents per gallon, which goes toward improving the roads and associated infrastructure. Since a boat (or lawnmower, backhoe, skidsteer, etc.) is not using this infrastructure, Virginia gives this tax back to you. However, you must have well documented receipts, and you are always up for review when you turn this form in. It has nothing to do with your state or federal income tax. You can turn this form in at anytime. Each individual receipt must be for more than 5 gallons of fuel. This is the same concept as buying diesel fuel that is dyed for farm or off-road use only. Only you get the money (tax) back after the sale, not at initial purchase.

You can read more about it here:
http://www.dmv.state.va.us/webdoc/citizen/fuel_tax.asp

I hope the IRS reads this thread! They are going to have a field day with the audits!

I agree 100%, I too have a good accountant and anyone considering doing this might as well raise the biggest red flag they can find.

No kidding.
I'm no tax guy, but even I know that with my last boat, writing off the interest was a stretch.

Gas/repairs?????
Next time my boat breaks, I'll just sign up for a PR, and write off all the parts and labor to get it ready for the run.:angry-smiley-038:

Gee, why didn't I think of that??
I guess because in my opinion it's not only dishonest, but if you are saying you're in a certain PR because you agree with their charitable donation recipient, you aren't donating a thing, you're just looking for someone else to pay for your entertainment.

If that's what you're looking for, there is a much better LEGAL way to do it, find someone to SPONSOR your boat for the season.
There was a guy about 2-3 years ago that had his boat sponsored by Capt. Morgan.
I don't recall how his whole experience with it was - maybe someone can dredge up an old thread...???

i can't say who but i know a guy who boat the whole boat with a company check and the new trailer to and all the service parts just hope IRS doesn't come for three years thats what he told me

Yes, I wright it off right out of my bank account. Interest only as a second home if it meets the IRS criteria.

What does three years have to do with it?

My CPA told me that the only way to expense a boat is to start selling boats and utilize your demos for personal use. Otherwise take the 2nd home interest deduction and call it a day.

Last year I entertained clients a few different weekends @ the lake. I let them stay in my extra condo and took them boating. Even in this instance my CPA said it isn't worth messing with. He also uttered the statement about pigs getting fat and hogs getting slaughtered.

if i am not mistaken they have three years to get you on any mistake on your taxes. i believe bush passed that law a few years ago

So if my car breaks down on the way to taking some clothes to goodwill can I write off the fuel and repairs?

Thank you. Don't know why the guy reemed me out when he was wrong but oh well. I even made the point that it was related to Virginia road tax, not in any way related to Federal or State Income tax, and that it might be different in other states - which I am sure it is.

Sidebar - ALL of my receipts from last year got ruined. That sucked.

I don't think they are going to look at writing off all your boat expenses as a "mistake".

Also when you depreciate and expense listed property or vehicles, you have to put down the percent business use, and it has to be documented. Somehow, I don't think they are going to look at "I was out with my buddies" as legitimate business use.

Also consider this:

"The statute of limitations does not apply in the case of a false tax return or fraudulent tax return filed with the IRS with intent to evade any tax. See section 6501(c)(1) of the Tax Code and section 301.6501(c)-1 of the Tax Regulations."

You could really be setting yourself up for some serious back taxes and penalties. I wouldn't even want to think about it.

Michael

They will come after you after you are dead!!! :D

Under the current IRC, why is it your opinion that deducting interest on a boat that qualifies as a second residence is a stretch? It is clear that if the boat has a head, a bed, and a galley, it qualifies as a residence per current IRC. I am not sure why that is a stretch. There is a lot of grey areas in tax law, but I think this is fairly clear.

Wow! There is a name for this, tax evasion. How much enjoyment will you get from your boat while your serving your prison sentence? All this to save a couple grand in tax. Amazing.