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Discussion Starter #1
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!
 

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Telstar 28
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I am sensing an audit in your future. :rolleyes: 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.
 

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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.
 

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Discussion Starter #5
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.
 

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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
 

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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
 

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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.
 

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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.
 

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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.
 

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my boat is titled in an llc based in delaware, i did that for simple reasons. like some idiot comes on my boat when i am not there and falls overboard and drowns and his wife can not sue me, the only thing the llc owns is the boat.

dont think about doing what you are, if some idiot comes on your boat and drowns his wife can go after all of the companies income.
 

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"my boat is titled in an llc based in delaware,...the only thing the llc owns is the boat."

If the corporation has no business other than owning the boat? And doesn't, say, engage in the charter trade or make some business use of the boat?

That's often held to be a "sham corporation" and it won't stop anyone from coming directly after you, it will just add to the legal fees along the way. Not to mention, anytime a tax man sees "Delaware corporation" they're gonna start tearing the paperwork apart looking to see what is being dodged. They got wise to that back in the 80's.
 

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HelloSailor's point about the likelihood that your corporation would be found to be fraudulent and designed strictly to shelter assets is very good. I'd also point out that there really is no need for such a corporation, since someone who comes aboard your boat without you there and without your permission is trespassing. Unless you have done something to intentionally harm the trespasser, there is little chance that you will be found liable for any injuries they sustain. Trespassers, by custom and in many states by law, are responsible for their own actions and any injuries they sustain in the process of trespassing.

my boat is titled in an llc based in delaware, i did that for simple reasons. like some idiot comes on my boat when i am not there and falls overboard and drowns and his wife can not sue me, the only thing the llc owns is the boat.

dont think about doing what you are, if some idiot comes on your boat and drowns his wife can go after all of the companies income.
 

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my boat is titled in an llc based in delaware, i did that for simple reasons. like some idiot comes on my boat when i am not there and falls overboard and drowns and his wife can not sue me, the only thing the llc owns is the boat...
Aside from the obvious sham corporation that others have pointed out, isn't this what insurance is designed to cover? Don't all marinas require this insurance?
 

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Midwest Puddle Pirate
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You could have an llc own the boat, then rent the boat back to your business. Then the llc is in the boat rental business and is no longer a sham. Your business then needs to use the boat for business purposes, like client entertainment more than 50% of the time. If you could PROVE that your boat was used for the entertainment of PROVABLE clients and potential clients, and the amount that you're spending on client entertainment isn't way outside of industry norms, then you could get away with it.

I would rather spend my time figuring out how to make enough money to just have the boat I want, instead of figuring out ways to get myself audited.
 

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"isn't this what insurance is designed to cover? Don't all marinas require this insurance?"
No, they usually require liability insurance up to a fairly low amount, 1/4 million perhaps. But if someone gets drunk, falls overboard and drowns, the wereguild for one death can easily run $3.2 million dollars (typical FAA accounting) so you'd need liability coverage in excess of 3 mil assuming you had any other assets--or anticipated income during the next 20 years.

John, renting and leasing back and forth is exactly what gets corporations declared shams. Everything about all aspects of the business has to be "arms' length" and handled on the open market at market prices and market terms. Setting yourself up on a sweetheart deal with no competition, no bids, no other parties involved--won't impress the tax men.

Start a church on the boat, be the liveaboard pastor, make sure everyone is invited to come congregate and pray multiple times a week and then "experience the glory of the gods" at sea. THAT you can do legally, but you'll still have to give away the value of the boat (to the church) and your corporate bylaws will have to ensure it still gets given away to another non-profit group, never to come back to your pocket. Not so perfect, huh?
 

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"isn't this what insurance is designed to cover? Don't all marinas require this insurance?"
No, they usually require liability insurance up to a fairly low amount, 1/4 million perhaps. But if someone gets drunk, falls overboard and drowns, the wereguild for one death can easily run $3.2 million dollars (typical FAA accounting) so you'd need liability coverage in excess of 3 mil assuming you had any other assets--or anticipated income during the next 20 years...
I would suggest that a sailboat is not the only liability a person has. You're much more likely to kill someone (or several at one time) driving your car than you are to kill them with your boat while it is docked. If someone is genuinely worried about getting sued for $3.2 million, it is relatively inexpensive to buy an umbrella policy that could cover ALL of a person's liabilities, not just a boat.
 

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Midwest Puddle Pirate
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John, renting and leasing back and forth is exactly what gets corporations declared shams. Everything about all aspects of the business has to be "arms' length" and handled on the open market at market prices and market terms. Setting yourself up on a sweetheart deal with no competition, no bids, no other parties involved--won't impress the tax men.
It will get your corporation declared a sham if the asset is not used for legitimate business purposes by the business, and the business must lease the property for going market rates. This is exactly what I do with my commercial building. My llc owns the building, and leases it to my auto shop. There are many good reasons to do this, but none of them really apply to the OP. The OP wants to own a sailboat for his own personal enjoyment, and write it off as a business expense.

If the OP forms an llc and haves the llc buy a sailboat, he can then lease the sailboat to his other business for a reasonable rate (costs plus margin). His other business must then use the sailboat for legitimate business purposes. If the boat is used most weekends (and even during the week) to entertain LEGITIMATE clients with the reasonable expectation that such entertainment will secure increased sales, then it is a legitimate business expense. It's really no different than a business buying a membership to a country club to take their clients golfing.

This discussion is of course, moot. We all know that the OP is not looking to purchase a sailboat for legitimate business purposes, he just wants to avoid taxes.
 

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I sometimes wonder what kind of write-offs Larry is claiming with his Oracle boat?
 
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