Businesses have been born from hobbies and personal interests since commerce began. If you look around, you will see it everywhere. Baseball? Horses? Cars? Photography? All great passions that often lead to even greater business ideas. If you have saltwater in your veins like we do, you probably have a dream of owning a luxury yacht to explore and relax aboard on your weekends or even extended cruising. But, like many of the best leisure activities, the privilege of owning and enjoying a yacht comes with a hefty price tag.
But, as with other expensive hobbies, astute business people have created ways that you can turn your boat into a business. A catamaran sailing yacht or catamaran power yacht can be much more than just an expensive toy by turning it into a business with tax deductions, depreciation, exit strategy, etc. all planned out.
A yacht business can be done successfully provided you set it up correctly to comply with IRS rules, and it’s perfectly legal. To accomplish this, you should purchase your new yacht through a limited partnership or limited liability corporation rather than a foreign corporation and there are certain rules you must follow to qualify for the tax deductions and reap all the financial planning benefits. It can be done and we help people do it every day!
How to Put Your Yacht Into a Business
1. Create a Business Entity That Will Own the Yacht
Setting up a business entity such as a limited liability corporation (LLC) is a relatively simple, quick and easy process and can be done online or with the help of your CPA. What you are looking for is a “pass through” entity in order to be able to optimize the tax advantages that your yacht as a business will generate.
2. Acquire Financing for Your Vessel
Applying for a Marine Mortgage takes some research and your broker should be abLe to direct you to a lender that specializes in yacht loans. Much the same as a house mortgage, you will need to work with a specialized broker in the Marine Mortgage space. There are specific criteria that you will need to meet such as debt to income ratios, liquid cash and credit scores which will all be explained by the mortgage broker. Your yacht broker should be able to direct you in the right direction as part of the service they provide as your principal contact in the transaction. Here are some of our recommended yacht financing companies.
3. Prepare a Business Plan
In order to fulLy understand the financial model, create a P&L(profit and loss statement). It should include all the costs that you will incur including:
- dockage
- insurance
- maintenance
- mortgage costs
- operating costs for the charter service
- relocation costs, if applicable
- commissions
- incidentals..
Once you have all the numbers, you then you need to formulate an operational plan that will address things such as
- location
- management company or independent charter operation with employed crew
- hurricane plan if applicable
- marketing plan such as attending boats shows to promote your business
- best boat for the type of charter you intend to offer etc.
The business will need to have an administration component and active participation by the owner, so you need to have a plan on how to cover this aspect and meet the active participation requirements. Once you have your business plan refined, you should consult with your CPA to ensure that you have the correct structure to be able to benefit from available tax advantages
Important Things to Remember About a Yacht Business
- Sloppy business organization can land you in trouble. It is imperative you or someone you hire maintains organized records of your business activities. One key aspect that is often overlooked is that your yacht charter business is its own entity with its own bank accounts. To maintain integrity of the business, it must be kept separate and distinct from your personal affairs through verifiable “arm’s-length” transactions.
- You will file a separate federal tax return for your business. It will have separate bank accounts and records. Failure to maintain the propriety of the business as a separate entity will not end well with the IRS.
- Consider other aspects that you think about when you think of a business. Most have a website and can be found in online directories within their industry. So building a basic website and making sure your business is listed on Google Maps, YellowPages.com, travel-related sites, etc. While not required, you might also consider at least one social media channel and be sure to post or ask your crew to post pictures from various charters (with charterer permission of course). Here are our recommended yacht business marketing support companies.
The key is to act like it is the business that it is.
This strategy might seem a little complicated, but it really is not and if you set the business up correctly and play by the rules, the benefits of this strategy should outweigh any of the challenges you face in execution. Establishing a charter business with your new yacht can be an effective way to more efficiently manage the total cost of ownership.
Learn more about our Boat Business Programs.
