Mike Kimball, CPA

Can your yacht be used for
business entertaining?

Yes, but it may serve you as an even more valuable business tool if you are able to conduct yachting activities as other types of
business uses. Working together with your accounting firm or internal accountants, Mike Kimball, CPA will advise you of strategies that put this tool to work.

Besides enjoying your boat more often, these strategies can help you develop and strengthen profitable business relationships. Unlike a noisy restaurant or busy golf course, a yacht serves as a private, luxurious place to enjoy the company of business associates. Candid conversations can be held in an atmosphere that promotes cooperation and goodwill.

So why not get all the advantages including the income tax deductions?

IRS refers to yachts and similar property as  "entertainment facilities."

Because some businessmen's practices were considered "abusive," since 1978, tax deductions have been governed by very specific rules. These rules have been strictly and aggressively enforced.

Basically, IRS distinguishes between "
out-of-pocket expenses" and indirect costs, or "facility expenses." The extent of deductions allowed depend on the types of activities for which your yacht is used.

Out-of-pocket expenses include crew salaries, fuel, catering and other consumable costs. IRS regulations even mention fishing bait! Like other business entertainment expenses, these expenses are deductible (subject to the regular 50% limit) provided your entertaining and business discussions are "directly related" or "associated" with the conduct of business. IRS regulations specifically caution yacht owners that their deductions will not be allowed unless their records clearly prove these conditions are met.

Facility expenses include yacht rentals, maintenance, insurance, dockage and depreciation. Deductions for these expenses are generally not allowed if your boat is used to any extent for business entertaining.

But again the tax code is specific. It includes nine exceptions to the general disallowance rule. Four of these exceptions can practically be employed to structure deductible yachting activities. Different conditions, record keeping and reporting requirements must be satisfied to qualify. Since these exceptions describe activities for which facility expenses are deductible, IRS refers to them as business uses other than entertainment.  See Tax Advisor for Business Use of Yachts for further information about structuring your yachting activities as deductible business uses.