Putting sailboat into Corporation

zboss · #1 (**permalink**) 03-05-2010

Hello,

I have some basic questions about accounting. My wife has two home businesses... one is a cash-only business and the other is via an I-9.

Right now, she is not running these businesses under a corporation so we are paying hefty income tax on the profits, many thousand dollars a year.

This may be a stupid question but when we do buy a boat, can we incorporate the businesses and put the boat into the business name? I suggested that we could use the boat to take clients out on and maybe to put an advertisement on, so that we could legitimately claim it as a business use.

Could we lower our taxes by writing off the deprecation and up-keep?

Thanks!

FSMike · #2 (**permalink**) 03-05-2010

Advice from a tax accountant/tax attorney is strongly recommended.

sailingdog · #3 (**permalink**) 03-05-2010

I am sensing an audit in your future.

The IRS would be all over you like flies on cow patties. I think you would have a really hard time justifying any write offs for the boat.

hellosailor · #4 (**permalink**) 03-06-2010

An I-9 is for Customs & Immigration, verifying an employee is eligible ot work in the US, isn't it? What's that got to do with corporation structures?

A cash business is a good trigger for an audit but also means nothing. Questions like these come back to what Mike said: GET AN ACCOUNTANT. An "enrolled agent" or CPA with a tax law background.

Corporations are not necessarily a way to reduce tax loads. And unless the business of the corporation is somehow "boating", you are likely to be doing tax evasion, not tax avoidance, and that's when the IRS and state authorities really come after you for every cent you are worth.

zboss · #5 (**permalink**) 03-06-2010

Quote:

Originally Posted by hellosailor

An I-9 is for Customs & Immigration, verifying an employee is eligible ot work in the US, isn't it? What's that got to do with corporation structures?

A cash business is a good trigger for an audit but also means nothing. Questions like these come back to what Mike said: GET AN ACCOUNTANT. An "enrolled agent" or CPA with a tax law background.

Corporations are not necessarily a way to reduce tax loads. And unless the business of the corporation is somehow "boating", you are likely to be doing tax evasion, not tax avoidance, and that's when the IRS and state authorities really come after you for every cent you are worth.

Sorry, 1099... she is in direct sales via a very large company. Has been doing it for years. So far, we have been able to depreciate her vehicle when used for business... so I don't see why a boat could not also be used for business.

We have already been audited... the IRS took a lot but then two years later they sent the money back with interest saying "we made a mistake"... how often does that happen.

I guess you are correct - time to get an accountant.

blt2ski · #6 (**permalink**) 03-06-2010

SOmething you may or may not want to look into, is buying a boat you can charter thru a local sailing school/program. I'm sure in any reasonable size sailing area there is a program like Seattle Sailing or WIndworks here in Seattle. Anacortes up north of me has some charter/school type programs too. You can sail you boat at certain times guarenteed to a point, others if rented out, you get a portion of proceeds, write off the boat to a degree as I understand it too.

I am not going to say this option is for everyone, some it works great, I know of a couple of folks here in Puget Sound that rent/charter there boats out, one just chartered, the other thru windworks and also IIRC works as an instructor too. I am sure for the two positives I know of, someone will come up with some negatives too. If you do this, go in with your eyes open!

Marty

sck5 · #7 (**permalink**) 03-06-2010

Do you really think you can dream up a way to avoid paying that the tax authorities havent already seen and passed a rule to prevent? Just pay the taxes and then relax. Its much easier

zboss · #8 (**permalink**) 03-07-2010

Quote:

Originally Posted by sck5

Do you really think you can dream up a way to avoid paying that the tax authorities havent already seen and passed a rule to prevent? Just pay the taxes and then relax. Its much easier

Seriously.

However, I see no reason why we cannot work within the law to reduce our tax burdens. If I were to not make any effort my tax bill would be much much higher than it is. I am not looking for a way to get out of paying taxes, just reduce my tax burden within the framework of the law provides. Tax laws change constantly and now that many of the Bush era cuts are going away, there have been other changes to the law to make up for those cuts.

If I can find a way to lower taxes, this is nothing that corporations and people do not do every day.

sck5 · #9 (**permalink**) 03-08-2010

I am not saying we shouldnt go to the edge of what the law allows. They are written assuming that is what everyone will do. I just meant that the authorities want to collect taxes on boats - nobody cries over the complaints of yacht owners - and they have plugged every hole that I have ever heard of.

Lots of lawyers own boats - they have tried pretty much everything they can think of.

hellosailor · #10 (**permalink**) 03-08-2010

Ask any IRS agent, or any CPA, about the difference between tax avoidance and tax evasion. While the latter is a crime, the former is perfectly legal and often worth pursuing.

It is the folks who think they can find obvious errors (like claiming the 16th Amendment wasn't ratified, therefore they owe no taxes) without doing lots of legwork, who find their "avoidance" declared "evasion" and rewarded with jail time. Plus penalties and interest, of course.

Tax avoidance is not a beginner's game.

z-boss-
If she receives 1099 statements she is being classed as an independent contractor, not an employee. That classification may or may not be correct, the IRS has guidelines openly posted about it, and there are businesses who get in trouble every year because they try to wrongfully declare "contractors" in order to avoid paying employee taxes and benefits.
But assuming she is a self-employed contractor, there are (again) published rules for the use of business equipment, including cars and boats and home offices alike. Her car may be used for business travel, but will her boat be used for business travel to job sites? Will the use be over 51% and documented for that purpose? If you have to ask "why?" to any of these points...you need to read the IRS guidelines for deductions and the self-employed. Simply putting a corporation into the middle of things (s-type or otherwise) doesn't change much. The IRS regularly declares "sham corporations" and then throws out returns. And of course, adds penalties and interest and then considers criminal fraud charges.
You really want to read up (from irs.gov) on everything relevant, and then consult a CPA or EA in your area, before you start pulling that tiger's tail. If you want to "deduct" a boat, the long-established and legal way to do it, is to buy a boat as part of a dedicated charter business, with a hired captain, hired charter management company, and full-time charter business. When you want to use the boat, you pay them like any other customer, and your profit or loss is that of any other business owner.
Aircraft owners do the same thing--and the IRS fully approves of it, when done in a businesslike manner. But if you don't make a good effort to have a business running and make a profit in 3 years out of 5? Odds are they'll call it a hobby and send you a bill. Again, any CPA should be familiar with that. Paying for one now, will be way cheaper than paying for legal counsel after an IRS love letter.