Navigating Yacht Tax Deductions: A Comprehensive Guide for Business Owners
Written By Kaden Hackney, Operations Leader at BEC CFO & CPA
Navigating Yacht Tax Deductions: A Comprehensive Guide for Business Owners
Owning a yacht is a symbol of luxury and success, but did you know it can also offer substantial tax benefits? This guide aims to provide you with the essential knowledge required to maximize tax deductions for your yacht, ensuring you can enjoy the perks of your investment while staying compliant with tax regulations.
Understanding the Basics
It may surprise you to find that the IRS treats all boats whether they are 5 ft or 50 ft as yachts. To qualify for tax deductions on your yacht, over 50% of its use must be dedicated to business transportation. Meeting this "more than 50 percent" test opens the door to various deductible expenses, including:
Fuel Costs: The expenses incurred for fueling the yacht during business trips.
Insurance: Premiums paid for yacht insurance.
Repairs and Maintenance: Costs related to repairing and maintaining the yacht.
Dock or Slip Fees: Charges for docking or storing the yacht.
Caretaker Salaries: Wages paid to staff responsible for the care and upkeep of the yacht.
Hurricane Storage: Costs associated with storing the yacht during hurricane season.
Depreciation: Including Section 179 deductions, which allow for the immediate expensing of certain capital assets.
However, it's important to remember that these deductions are subject to specific limitations imposed by tax laws governing luxury water transportation.
The Entertainment Facility Clause
Tax laws treat entertainment facilities, including yachts, with stringent rules. With the introduction of the Tax Cuts and Jobs Act, business entertainment expenses are no longer deductible. Therefore, it's advisable to avoid conducting any business entertainment activities on your yacht, such as hosting fishing trips with clients. This not only ensures compliance with tax
laws but also simplifies the deduction process.
Calculating Your Deductions
Luxury water travel limits are variable and can change monthly. In 2020, the limits ranged from $760 to $988 per day. For example, if your yacht expenses exceed the daily limit and you used your yacht for 45 days of business transportation at the lowest limit, your deductions could amount to $34,200 (45 days x $760). This substantial amount underscores the value of
understanding and leveraging these tax provisions.
Staying Updated
Tax laws are subject to change, and staying informed about the latest updates is crucial. Regularly consulting with a tax professional or referring to updated tax guidelines can ensure you remain compliant and continue to benefit from available deductions.
Conclusion
Maximizing tax deductions for your yacht requires a blend of strategic planning and staying abreast of current tax laws. By ensuring that over 50% of your yacht's use is for business transportation and avoiding business entertainment activities on the vessel, you can significantly reduce your taxable income.