Tax Deductions for Boaters: Legally Write Off Some of the Costs of Boating

Tax Deductions for Boaters: Legally Write Off Some of the Costs of Boating
Depending on how you use your boat, you may readily qualify for tax deductions and reduce your boat operating expenses. You can find a way to maximize your taxes every April when the IRS comes calling for taxes.

Most boat owners don’t know the valuable deductions they miss out on when they fail to exploit certain legal loopholes. These scenarios include:

  • Using the boat as a business
  • Donating your boat to a charity
  • Charter boat deductions
  • Using the vessel as a second home
  • Using your boat for business commuting

If you want to learn how to write off some costs of boating legally, here are the different scenarios in detail.

Using the Boat as a Business

If you entertain your clients in your boat, you may apply for tax deductions under the entertainment expense. Likewise, if you use your boat as a part-time office, you may qualify for a home office deduction.

In both scenarios, you must have future expectations of raising revenue as a result of these business-related activities. The purpose should be to transact business, and occupants of the boat must have business discussions onboard.

Documenting every expense is essential when claiming a tax deduction. Since some people exploit this deduction, strict laws require you to keep thorough records. They should include the date, reason for using the boat, location, the occupants you are entertaining on board, and the nature of benefits you are expecting during this period.

You should note down entertainment details such as fuel cost, food, and drinks, or other fees such as entry fees to fishing tournaments. This record ensures you have grounds for qualifying for deductions. The limit for such an outing is usually 50% of all the costs.

Donating Your Boat to a Charity

When it’s time to look for a new and bigger boat, selling your boat might take weeks or even months and may cost you a lot in taxes. Donating your boat to a charity gives you a tax advantage with the IRS and may even raise more than it would in a trade-in at a dealership.

But only the fair market value is deductible, which is still a sizeable tax advantage. You need to have an independent appraisal that clearly states this market value. Unlike this value, the replacement value is considerably higher.

You can choose any charity as long as it’s an NGO, with groups like the Sea Scouts taking care of all the donation paperwork, including a Form 1098-C for record by your accountant.

Charter Boat Deductions

For you to captain your boat as a six-pack charter, you need to ensure the IRS doesn’t view your activities as a hobby by making a genuine effort to make a profit. You may also need to upgrade your boat insurance for you to use it for commercial purposes.

But first, you need to acquire your U.S. Coast Guard license so you can have at least six guests onboard your boat. Under this deduction, you can also write off costs like depreciation, fuel and mooring, maintenance, and other boat equipment purchases.

Using the Vessel as a Second Home

You can write off the interest paid for using your boat as a second home. But it needs to have a berth, a permanent gallery, and a head (bathroom). For this deduction, you need an IRS form 1098 to write off any interest and secure a loan. If you do use this vessel as a second home, it will require deep boat cleaning from time to time and may insure you additional costs.

You can also write off any points you pay to get the loan or the penalty on the early payoff of the loan.

Using Your Boat for Business Commuting

If you use your boat to commute to-and-from your business location, you may qualify for tax deductions. The IRS requires that you use the vessel for at least 50% for business transportation before you can claim it.

You can deduct insurance, fuel, repairs, crew salaries, depreciation, and hurricane storage. And for these businesses, you should not use the boat for entertainment purposes, or else it will invalidate the business transport deduction.

It’s also a good idea to keep a record of every expense and activity of your business.

Claiming your deduction

Your lender is not obliged to issue you with Form 1098 since your boat is not real property. This form documents all the interest on the boat loan for the year, which appears in box 1 of form 1098.

Contact your lender to find out the total interest you paid during the year, then report this deductible interest on line 11, Schedule A.

Keeping up with the frequent federal tax law changes may seem impossible, especially if you have a tight business schedule. The penalties may also be too high to keep up with, especially if your business is not turning a decent profit.

If you are not sure which of your boat operating expenses qualify for tax deductions, it’s best to consult your maritime attorney or accountant.

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