As a participant in this program, the yacht owner is the owner of a small business in which he/she actively participates within the limited liability company entity (“LLC”) structure created to own the yacht and within which the business is operated. Just like any other small business, there are revenues from yacht charters from which all the expenses of related to managing and maintaining the yacht are deducted. In addition, as an active business, the yacht maybe depreciated and that depreciation is also an expense. Ultimately, the LLC business has a net profit or loss which passes directly through to the owner’s 1040 personal tax return.
To better understand the ultimate value to you of these benefits and deductions, you may want to check your incremental tax rate here. Your incremental tax rate is effectively the percentage of a deduction that you can directly realize as tax savings.
Simply put, all the expenses of the yacht are deductible from charter revenues,and, to the extent there are losses, the losses are deducible from other income. Expenses include virtually the costs you have to operate the business plus depreciation:
A yacht is typically depreciated over 10 years using either a “straight Line, 10% per year of total purchase cost or by an accelerated depreciation schedule called “MACRS” that is prescribed by the IRS that allows faster depreciation. In addition, there is additional, extra first year depreciation permitted which is known as “Section 179″.
As a small business taking depreciation deductions , however, it is very important to always be able to establish that the owner actively participates in the business and that the business’s intent is to make a profit. This can be demonstrated by adhering to common sense business practices that consider the IRS’s test criteria which do not directly depend on making a profit. In order to clarify these criteria for a yacht charter business, Florida Yacht Group engaged knowledgeable CPA’s to prepare a “whitepaper” on this topic. You can read this detailed CPA Whitepaper by registering your interest with FYG and then using the password provided to access it on-line. It steps through all the applicable IRS criteria. Register, and you will receive an automatic email with the password; then go to the following page: Smart Yacht Business Downloads.
FYG will assist Smart Yacht Business Program participants every step of the way to forming an LCC and provide guidance concerning best practices for its operation. To make each step clear and explicit, FYG has prepared the following very detailed checklist to guide start-up of this activity. This detailed step-by-step checklist provides steps that closely follow the guidance given in the CPA Report. Available to you if you register with Florida Yacht Group.
Finally, in order to help the Smart Yacht Business Program participant to more explicitly establish his/her active participation in the business, FYG offers a Sales Associate Agreement under which the SYB Program participant can earn commissions for assisting with yacht sales and charters, as well as, be compensated for use of the yacht for demonstration purposes.
IMPORTANT NOTE: FYG wants to stress to prospective clients that FYG is not a qualified tax adviser. Hence, the prospective owner is personally responsible for reviewing and confirming his/her entitlement to the foregoing tax benefits/deductions ideas with their personal CPA or ta adviser.