Taxes and the Liveaboard

[LuckyJack]

I know this is dependant on region and state, but as we come upon the tax season soon, I''d like to know how to take advantage of the deductions we can get for making our boats our homes. I''m in Washington State, so hearing from anyone here would be a plus.

[928frenzy]

The only part dependent on locality is for state taxes. If you''re making payments for your boat, and it''s either your 1st or 2nd home, then you can deduct the interest payed on Schedule "A" of the 1040 FEDERAL Tax Forms.

~ Happy sails to you ~ _/) ~

[Shack]

OK Sailors, I feel the need to resurect this old thread because I want to know more.

It makes sense that the interest on a boat loan is deductable on Sched-A. I would like to know if anyone out there is filing Sched-C deductions against their maintenance costs and marina fees?? (Business use of the home?)

If a portion of the boat is used for business purposes, that should also make the appropriate portion (%) of all fees and expenses deductable as well. If one is a writer or runs an online business from one's liveaboard, there are income deductions that may apply. A V-berth (second cabin) on a fair sized vessel can constitute over 10% of the boat area. Even more if one figures the area against total "living space."

Even if 10% space can be attributed to one's profession, this can be applied to costs such as slip fees, liveaboard fees, pump-out, hull maintenance, registration, and insurance. Sailors spend a lot on some of these things. My math shows that 10% of "a lot" equals "pretty good."

It would be great to hear from some of those "techies" out there that do online work from their boats or from writers/authors of all those sailing magazines/books to chime in with their tax saving experiences.

Thanks!!

[6string]

I have an accountant looking into this issue for me. I intend to purchase a boat for around $125,000 and use it as housing and transportation for a photography business as I sail around the world slowly. My contention is that I should be able to deduct the total cost just as if it were my car used for business on land. I'll let you know what I learn. It will be awhile before I here back from her. She has a client that is going through an audit and she is going to ask the auditors some anonymous questions on my behalf.

Jeff

[Shack]

Not bad. I'm interested in what you find out. The hardest part will showing that 100% use is dedicated to professional purposes in order to dedcut all the expenses. You may have to show the intent to make a pofit, and not just be a guy with hobby. Hobbies don't count. I've heard about failed audits becasue the IRS decided the craft whatever it is was not legitimate.

You may ask her about incorporating under an LLC or S-Corp. It may be cost prohibitive for you now, but the generally this concept would benefit you in the long run. As a corporation you can deduct all your expenses from your income and only pay taxes on the net (true profits). The only draw back is that somewhere you have to show a profit (5 years?) in order to show that your not just playing games with the IRS.

My wife runs a home based business and we're moving to a bigger boat with the intent of outfitting a cabin as a small studio for her.

Good luck!

[xort]

I've had a home office for my business for over 20 years. My accountant told me I qualify for the type of deduction you are asking about. One room is only used for my business. But, he then told me that there is a check box on your tax return you need to check if you are claiming the home office deduction. That check box becomes a red flag for the IRS computers and your chance of audit goes way up. I didn't want the hassle of an audit, even tho I'm clean, so I didn't take the deduction.
If you take the deduction be fully prepared for an audit of your books.

[Shack]

XORT,
I wonder if there is a differentiation between a "home office" and "biz use of home". The difference benig a "shop" or "studio room" that is dedciated to a craft or active production of some sort. I'd have to review my 1040's, but I don't think that we have ever checked such a box.

I would reasonably assume that someone owning a desk, phone and computer could be tempted to abused and stretch the tax code. We, however, have a shop set-up for production, and have no concerns about audits as we use the existing code conservatively.

Moving her craft operations aboard a boat will be a little tricky, but it's not too space intensive. A cabin with a work surface, tools, materials is all she needs right now. I just ran some numbers and the annual deduction on just slip and liveaboard fees looks equivalent to almost two months of those fees.

We're also not raking in the dough, and based on that I don't think that we look like a very lucartive target for some auditor's portfolio.

[Shack]

... speaking of auditors. I often run into experts on forums like these. They come out of the wood work at drop of hat whenever one brings ups issue with boats, politics, food, ad whatever.

I have never noticed anyone pop in and say, "Well funny you should ask. I'm and auditor and I say ..."

Come to think of it I've never met anyone who admited that they an IRS auditor!

[sneuman]

If the interest on boat loan payments is deductable, what about marina fees?

[Shack]

I wouldn't think so - rent isn't deductable. That is, unless it's connected to a business expense.