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"YACHT AS A BUSINESS" OWNERSHIP PROGRAM

Follow This Link For General Information On Yacht Charter Management Programs>> OR Read On For "Boat/Yacht As A Business" Programs

Catamaran Guru™ has been at the forefront of developing and operating the "Yacht As A Business", or for us, "Catamaran As A Business" concept. We have not only advocated it to our yacht-buying clients, but have personally benefited from this program. We found that most yacht owners use this program as an avenue to acquire the cruising catamaran of their dreams for retirement at a huge discount. Others, like ourselves, use the yacht charter revenue together with the business tax deductions to reduce the costs of owning a very nice yacht that we enjoy now.

Catamaran Business Ownership

Whatever your reason, Catamaran Guru™'s team of experts can set up your yacht charter business in compliance with tax authorities to suit your individual financial and personal goals. 

Watch our in-depth interview with one of our yacht-as-a-business boat owners. He shares details and his experience about owning a charter yacht and working with Catamaran Guru™. He is candid about how the yacht charter business program he chose is working for him and talks openly about the challenges of charter boat ownership, tax advantages, actively managing the business, and his first year revenue and profits.

You, too, can work with Catamaran Guru™ to discover the pitfalls and get expert advice when you work with us. 

What Is A Yacht or Boat Business?

A yacht or boat business is a fairly simple concept and is structured much like any other for profit business. By placing a yacht into a corporation (usually an LLC) and operating it actively for profit, either directly or through a third party management company, the owner is able to generate substantial tax advantages that further offset the cost of ownership. For U.S. buyers who are in high income tax brackets, this is definitely an option of ownership that should be explored.

The tax benefits must be carefully planned and documented to make sure that the business activity can withstand scrutiny. There are very specific rules and requirements that need to be complied with in order to meet the standard of actively operating a business for profit and taking tax advantages. 

The goal is to structure your boat business in such a way that you have the intent and ability to make a profit! What you CANNOT do, is structure this business with a flawed business plan of "limited charter" and purposely run it at a loss to avoid wear and tear while offsetting the cost of ownership with business tax deductions. You CANNOT "pretend" to be in business! However this program, when done correctly, offers the least expensive alternative to own a boat!

What Is Section 179 Business Tax Deduction? 

People seem to think that the Section 179 deduction is some complicated tax code, but really it is not. Essentially, Section 179 of the IRS tax code allows businesses to deduct operating expenses and depreciate the qualifying equipment purchased or financed during the tax year. Typically, when a business buys new equipment, the purchase price can be depreciated using the MACRS scale which is an accelerated depreciation schedule.

The original target of this legislation was much needed tax relief for small businesses - and millions of them are actually taking action and getting real benefits. So, if you are in the market for a new yacht, the Section 179 rule should definitely be a part of your yacht-buying strategy.

According to this law, when used as part of a business, you can legitimately divert some of the taxes that you're already paying into the sailing vessel. This in turn, creates equity in your new yacht. Therefore, buying a new yacht and placing it in charter service as a business, makes total sense to reduce cost of ownership and turn tax advantages into an investment. It is vitally important the business is set up correctly and the operation is structured to qualify for the tax benefits and remain in compliance going forward. 

Understanding Section 179 Business Tax Deduction

*The U.S. Congress has halted the Section 179 roller coaster of the past recent years by making the Tax Deduction limit permanent. The limit was raised to $1,000,000 for 2018 and beyond. This is wonderful news for yacht businesses, as the owners and their tax advisers now know early in the year that the deduction will be there for them and they can plan accordingly.

Section 179 Tax Deduction Limits for year 2018

2018 Deduction Limit: The Tax Cuts and Jobs Act Tax Cuts and Jobs Act has INCREASED the Section 179 Deduction to $1,000,000. Businesses can deduct the full cost of equipment from their taxes.

2018 Limit On Equipment Purchases: This is the maximum amount that can be spent on equipment before the Section 179 deduction available to your company begins to be reduced. The "total equipment purchased for the year" threshold INCREASED to $2,500,000.

Bonus Depreciation: 100% for 2018 through 2022 and is made retroactive to 9/27/2017 - Bonus Depreciation is generally taken after the Section 179 Spending Cap is reached.

Note: Bonus Depreciation is now available for new equipment AND used equipment

Example Of Section 179 At Work For 2017

To take advantage of the current deduction and any retroactive raise, you must purchase the equipment and be placed

into service by 12/31/2018. Form 4562 covers this deduction

Bonus Depreciation: Deduction currently 50% 
Equipment Purchases $650,000

 

Section 179 Deduction: $650,000
Bonus Depreciation Deduction (100% for 2018 through 2022 retroactiveto 9.27/2017) $0
Normal First Year Depreciation
$0
Total First Year Deduction
$650,000
Cash Savings: assuming a 35% tax rate $227,500
Lowered Cost Of Equipment After Tax Savings
$422,500

 

*The above information is an overall, "simplified" view of the Section 179 Deduction. For more details on limits and qualifying equipment, please contact us directly about the variety of yacht ownership programs we can help you evaluate.


FAQ's About Yacht Business Ownership and Tax Advantages

crewed charter ownershipWe have received so many questions about operating a yacht as a business in the last few months, so we've decided to present a FAQ section for YBO. Basically, if you are a US tax payer, enjoy sailing and want to own your own yacht at a substantially reduced cost, this program will work for you. Although the acquisition of a new yacht may be an effective business tool to take advantage of these tax rules, the tax benefits must be carefully planned, documented and implemented to make sure that it can withstand scrutiny. 

Many of your questions and doubts will be answered in this list but if not, please feel free to give us a call or email us. Also read the article explaining Yacht Business Ownership in more detail. 

| Should I Own The Yacht Personally Or Through A Corporation?

It is better to own the yacht in a corporation because it reduces personal liability. It is a smart thing to do when running the yacht as a business where it will be for charter. If you place the vessel in an LLC the tax benefits flow through to you personally.

| Can I Legitimately Take The Tax Deductions?

If you are actively involved in the business and meet the IRS tests for active participation then it is a business and you can legitimately take the deductions and benefit from it. You need to show active participation as well as the ability and the intent to make a profit.

| What Type Of Active Participation Is Required?

The most common test is that the owner does a minimum of 100 hours and more than any other one person. If you do a website, attend trade shows, do familiarization trips and technical inspection of asset directly related to your business, you will log far more than 100 hours.

| How Do I Meet The Requirements?

In the course of running the business:

  • Attend a trade show such as the Annapolis trade show where the yacht is promoted for charter, you would easily and legitimately log 50 to 75 hours.
  • Apart from the chartering component of the business where the LLC (sub contractor) generates income through the charter company (general contractor) there are other income streams for the LLC such as charter sales where the LLC earns commission from charters sold on its own yacht, as well as other yachts in the fleet.
  • To be effective and facilitate the sale of charters, the owner would need to do "familiarization" trips to have good knowledge of the product being sold which is the cruising ground (this is much like a travel agent who travels to destinations that they promote and sell packages into).
  • One familiarization trip per year would log a minimum of 50 to 100 hours. It is also reasonable to have an annual inspection of the asset, which would require traveling to where it is located, again this would log 50 to 75 hours at the very minimum.

| Will Doing This Trigger An IRS Audit?

There is always the chance of an audit when a large deduction is generated, if proper records are kept and the owner does actively participate with the intent to make a profit then the standard is met and should satisfy scrutiny. Your CPA is the best person to answer this question because personal circumstances differ from person to person.

| What Amount Of Money Must I Put Down To Get Into The Program?

The deposit required by most lenders is 20 % so the cash out would be 20% of the full purchase price plus two months of mortgage payments in the Guaranteed program and two months of mortgage payments plus the insurance premium (1.5% of hull value) in the performance program.

| Is The Boat Insured During The Program And How Am I Protected?

The boat has comprehensive insurance in the name of the owner or the LLC from the time the keels touch the water. If there is a loan the lender is recorded as the first loss payee and DYC is noted on the policy for charter operations. The deductible is covered by an additional insurance policy that the charterer pays, so the owner has no exposure to a deductible unless they cause the damage themselves.

| What Tax Reporting Is Required?

Your CPA will be able to answer this but generally the LLC would generate a K1 which would be incorporated into the tax return

| Do The Tax Advantages Flow Through To Me Personally?

Yes they do.

| Is There Recapture On The Tax Advantages When I Sell The Boat?

Yes, there is if you sell the yacht outright at the end of the program and the rate is at ordinary income. If you keep the vessel for personal use after the program than this should not be an issue but check with your CPA for your personal situation. The third alternative is to trade the yacht is and do a "like kind" exchange in which case there is no recapture.

Common Misconceptions About Running a Boat as a Business

| Putting A Yacht Into Charter Is A Passive Activity Like Rental Property

Wrong, if you put the vessel into a Corporation and run it as a business and ensure you meet the relevant standards and tests then it is a small business and is taxed accordingly. Note, that if you go into a guaranteed income program where you sign a long term management agreement and receive a monthly guaranteed income, then this is passive activity and you will not be allowed to generate tax advantages save and except if you have passive losses that you can be offset against passive income.

| You Need 500 or 700 Hours Of Active Participation To Qualify

 No, the test most commonly used is " a minimum of 100 hours and more than any other one person". You will find that the US staff and base staff, who all have different tasks, will never spend more time on your boat individually than you will in a given year. Remember that the trade shows, familiarization trip, asset inspection trip, marketing, contract negotiation (we renegotiate the contract each year) would result in close to two hundred hours of active participation not to mention that all costs are also deductible.

| You Will Automatically Trigger An Audit

Unlikely that an audit is automatic, this is not the experience we have over the last eight years. The issue is to meet the tests and standards and ensure that you are in compliance with the rules. This is not for everyone but if scrutinized and everything is in order then it is unlikely that it would proceed to an audit.

| You Have To Make A Profit Three Out Of Five Years To Avoid "Hobby Loss" Rules

The rules state that if you make a profit three out of five years then hobby loss cannot be applied. To be clear, you DO NOT HAVE to make a profit three out of five. Many CPAs make this statement, which is not entirely accurate as it is interpreted the wrong way. The actual rule is that you have to have "the Ability and the Intent" to make a profit which is clearly the case here.

| A Yacht Does Not Qualify For Tax Advantages

The yacht is equipment that is being purchased and placed into service in a small business that has the ability to make a profit if well run which is the intent. The same rules would apply to the owner of a dump truck who sub contracts to a general contractor, there is fundamentally no difference. The truck would qualify for section 179 and Bonus Depreciation if purchased new. The owner would be actively involved even if there is an employed driver because of contract negotiations, marketing admin etc. and the intent is also to make a profit. 

| You Cannot Use The Yacht While It Is In The Program

You can use the yacht. It is generally agreed between most CPA's who are familiar with the program that 10% of private use by the owner over and above the familiarization and asset inspection trips, is acceptable.


WORK WITH OUR YACHT OWNERSHIP SPECIALISTS

Exquisite Yachts

How Can Catamaran Guru™'s Team Help You?

Catamaran Guru™'s Team Is Recognized As Yacht Business Program Experts. If you are serious about creating a yacht business, consult with the Catamaran Guru™ Team! If we assist you throughout the whole process, there are no additional costs to you, the buyer!

If you are a US tax payer, enjoy sailing and yachting and want to own your own yacht at a substantially reduced cost, this program will work for you. Catamaran Guru™'s team will work with you and your tax professional to qualify your "Yacht Business" to legitimately take advantage of tax deductions available to you. Although the acquisition of a new yacht may be an effective business tool to take advantage of these tax rules, the tax benefits must be carefully planned to make sure that it can withstand scrutiny. 

This is where Catamaran Guru™'s team can be of great value to you!

  • We will guide you on your selection of the yacht to purchase and guide you through the buying process
  • This business yacht ownership program is designed for flexibility to enable the owner to choose various yacht models and layouts including owner suite in some cases, upgraded equipment, multiple worldwide locations and flexible owner use. We will guide you to make a good choice to suit your individual goals.
  • Once you've decided on a yacht to purchase, we will help you set up your "Yacht As A Business" and structure it to comply with IRS tax rules. This will ensure that all allowable business tax deductions, advantages and yacht charter income, will largely cover the cost of boat ownership.
  • We will help you find a placement with a suitable charter management company. We have extensive experience in the charter management arena and will make sure that you and your charter company is compatible. In our experience, yacht charter management together with active participation by the owner is a great way to reduce the cost of yacht ownership. It is the perfect opportunity for anyone looking to buy a new yacht at a substantial "discount"!

When You Work With Our Team

  • You get the most complete yacht ownership program available, including a 5-year projection, tax schedule, and business plan
  • We show you how to set up your yacht charter business to be in compliance with current tax laws.
  • We guide you on how to qualify for tax advantages that can offset your ordinary income.
  • We familiarize you with the current tax laws and how they apply to your particular situation.
  • We discuss and plan your exit strategy
  • We guide you if you choose to upgrade to a larger yacht within this structure
  • We show you how to make your yacht be part of your retirement plan.
  • We help you understand the difference between a Charter Company Guaranteed Income Program (passive) and Yacht As A Business program (active participation)

Charter Management Lagoon 620We Work With Top Catamaran Brands and First-Tier Charter Companies

  • Catamaran Brands: Catamaran Guru™ can offer you access to some of the top brands of yachts in the world like Fountaine Pajot, Lagoon, Bali, Xquisite Yachts and others.
  • Charter Companies: We offer the added luxury of making it possible for you to place your new yacht into service at charter bases in multiple locations around the world through affiliations with reputable charter companies like Dream Yacht, CYOA and others.

Contact Us For a Consultation

There is a lot of information in these pages as we tried to make it as comprehensive as possible. But there is a lot to absorb so you may need someone to help you sort through it all. Plus there are always questions that deal specifically wtih your personal situation.

Contact us for a comprehensive consultation. Our services come FREE if we represent you during your yacht-buying process.

 

DETAILED ONTACT NFORMATION OR CALL 804.815.5054

 

BUSINESS YACHT OWNERSHIP REFERENCE MATERIALS

FAQ & Common Misconceptions About Yacht Ownership

We find that explaining what this program entails is easier for yacht owners, their accountants, and other financial advisors, if some common misconceptions and questions are addressed. This list gives a clear and uncomplicated picture of the program. Read more>>

How To Set Up A Yacht Business To Comply With Tax Laws

There are many things to consider and we give you a basic overview of how to qualify for tax advantages. Before you make the decision to purchase a yacht, consult with us to figure out if this scenario will be suitable for your situation. We will advise you on what size yacht you qualify for and what charter company will work for you in which location. We can discuss all scenarios with you and tailor the program for you and your family.

Section 179 Deduction Explained

This article explains exactly how section 179 works and how it affects boat owners. Read More>>

Compliance Issues For A Legitimate Yacht Charter Business

victoria67cockpit

While there are many skeptics and detractors to operating a yacht as a small business, we know that if it is done correctly, with a sincere intent to create a small business, which will either be profitable in the short term or in the long term through a paid-off asset acquisition, it is the correct business strategy for a yacht owner to reduce the cost of ownership. Read More>>

Charter Boat Owners Win IRS Challenges

The number one objection from CPAs is that our business yacht management program is a passive activity and will not be deemed active participation. 

They contend that it can be very difficult for a boat owner to prove active participation in a boat business and qualify for small business and section 179 tax deductions. However, in 2015, a couple won their case in Tax Court on passive vs. active participation. Their success validates the model that Catamaran Guru™ uses when advising boat buyers regarding charter boat ownership.

Section 179 Tax Advantages & Related Court Cases

We have seen many yacht businesses operated in charter programs very successfully around the world as small businesses by our clients. Offsetting the cost of ownership is a sound business strategy especially in the yacht charter business. However, there are many regulatory challenges to a yacht charter program, including complex tax laws, IRS regulations, active participation rules, profit motive and other business considerations.
The Court cases below illustrate the tax implications of yacht charter operations. Read More>>

BUSINESS YACHT OWNERSHIP SUCCESS STORIES

These are the websites of some of our owners already in the yacht bisness program. They have enjoyed tremendous success by following our advise and complying with the rules. We add yacht businesses like these every day and we can help you do the same!

Business Yacht ownership Lagoon

www.sailbigdog2.com: BigDog is a Lagoon 400 that operates in the Bahamas as a bareboat yacht business and is fully booked for most of the season.

treasurecatcharters.com: This Lagoon 450F is in bareboat charter business in the Bahamas. The owners are very active in promoting their business with exhibits at boat shows, booking charters and promotional advertising.

www.catamaranguru.com: Our own catamaran, Zuri, a Lagoon 450S, is in the program in the U.S. mostly doing instructional charters and exhibits at boat shows and demonstrations for prospective buyers.

ftmcharters.com: The Voyage 500 and her crew/owners is one of the most successful crewed boats in the BVI with numerous awards for excellence!

sailallende.com: This Fountaine Pajot Helia 44 is in Crewed Yacht charter in the BVI. This young couple is making big waves in the industry with exceptional service.

irishroversailing.com: This Fountaine Pajot Liapri 41 operates between Annapolis in the summer and the Bahamas in the winter as a successful bareboat business.

sailseastheday.com: This Lagoon 450 is in bareboat charter in a business program.

Blue Water Luxury Charters: The Xquisite 50 Catamaran is well suited for luxury charter and is crewed and operated by its owners, Peggy and Dave in the Bahamas and US.

YACHT BUSINESS TESTIMONIALS

We are very happy to have been able to help so many yacht owners be able to create thier own successful yacht businesses. Read below what our clients have to say and also read more of our testimonials here>>

Business Yacht Ownership Resources

Section 179.org

Section 179 Tax Deduction Calculator

Form 4562 covers this deduction

Tax Relief Act Of 2010

Checklist for Vessel Purchase 

Active vs. Passive Activity 

Section 168

Boat as a Second Home 

CPA New Jersey: Paul M. Kaplan, CPA, MBA KMMS LLC, Certified Public Accountants, New Jersey

CPA Florida: Glen H. Gopman, Stroemer & Company, LLC Certified Public Accountants, Florida

More Yacht Charter Management Programs & Tips

 

*This information is general in nature and purchasers are encouraged to seek experienced legal counsel in yacht acquisition planning and implementation. Catamaran Guru™ is not a licensed Tax Attorney or CPA and is not qualified to give legal advice but we can put you in touch with experts who are.

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