Why you should have a tax advisor
Most yacht owners are affluent, successful professionals or entrepreneurs. Their relatively high incomes and varied investments make them likely IRS audit candidates without regard to contentious yacht issues.
Be advised the word "yacht" on a tax return is an "audit red flag." IRS views yachts as recreational property and assumes that all expenses are incurred for nondeductible personal motives. However, the Tax Code clearly provides that deductions for chartering and certain other business uses are allowed to varying degrees depending on an individual's particular circumstances.
For example, circumstances that affect tax deductions for chartering include the type of expense (i.e. interest, facility expense, depreciation, etc.), nature of charter operation (rental vs. business), owner's personal use, and owner participation in the chartering operation.
Circumstances that affect deductions for other business uses also include the type of expense (out-of-pocket vs. facility expense), business relationship with users (employees vs. other business associates), adequacy of records, and compliance with year-end tax reporting procedures.
With the help of a qualified advisor, you can accomplish three things.
First, you can plan and shape your circumstances to receive the most favorable tax treatment. Second, you can minimize the likelihood of an IRS dispute by choosing operating and reporting methods that are clearly supported by the Tax Code. Finally, you can receive the most enjoyment from your vessel by having assurance your income tax affairs are in good order.
Mike Kimball, CPA is ready to help you accomplish these objectives. His experience in this area can help you, or your accounting firm, to quickly identify the important facts and evaluate your options.