Bay Yacht Agency Tax Guidelines
20
11

 Here's what you need to know about the current tax law (2011)

Here's how it might affect you if you want to take advantage of it to get a new boat... But first, join Douglass and I in offering a toast to both the old and new congress for recognizing that tax incentives for small business is going to help the economy and jobs creation in a significant way-...

How do you get the tax advantages?

You establish a business purpose, generally to have a management company that understands the guidelines, manage your boat and charter it when you're not using it. Some people simply operate their boat themselves or offer cruises or courses to meet the criteria. While there are a number of choices--you should discuss your plan with us as it can be tricky and a mis-step may disqualify you.

Typically, you set your boat business up as a LLC or other pass through entity and the business tax advantages directly offset, first, the income from your boat business activity (translated, tax-free income!) and then the taxable income from any (Active) source, including your regular job (W2 income). With our business plan, you will know precisely what the tax advantages will be, so you can adjust your with holding and use the tax advantages to offset cash flow immediately! You do not wait until the end of the year (even IRS will tell you this!)

The tax advantages include writing of your expenses and visits to the boat, a so-called 179 expense allowance, bonus depreciation and finally MACRS or straight line depreciation.

What all of this means is that when the tax advantages are taken into consideration, you don't need to charter much, or suffer undue wear and tear, in order to offset 80-100% of your total costs--including the loan and all operating expenses--sound interesting? It should... (Note, the following applies to any business you might have or set up--including your boat business!)

What has happened for 2011?

NEWS ALERT:  Jan 1, 2011 The 'Tax Relief Act of 2010' signed 12/17/2010, extends Section 179 Deduction as well as expands Bonus Depreciation thru the 2011 tax year.

 

Section 179 limits were increased by the ‘Jobs Act of 2010’ on 09/27/2010 – allowing businesses to write-off up to $500,000 of qualified capital expenditures subject to a dollar-for-dollar phase-out once these expenditures exceed $2 million.

 

Bonus Depreciation was increased by the 'Tax Relief Act of 2010' on 12/17/2010 - allowing businesses to use 1st year Bonus Depreciation of 100% on qualified assets purchased after Sep 8, 2010 but no later than Dec 31, 2011.

What’s the difference between Section 179 and Bonus Depreciation?  The most important difference is Section 179 covers both new and used equipment, while Bonus Depreciation covers new equipment only. Bonus Depreciation is useful to very large businesses spending more than $2 million on capital equipment in 2011; also businesses with a net loss in 2011 qualify to deduct the cost of new equipment.

Computer Software will continue to be eligible for §179 expensing in 2011.

When applying these provisions, Section 179 is generally taken first, followed by Bonus Depreciation – unless the business has no taxable profit in 2011.  

Concerning financing: The organizations financing source, and most other sources you might encounter will probably not finance a Boat as a business--because that is outside of their normal experience. We have 3 sources that will--talk to us.

2011 is the Year to Do It!

 

Due to the extension of Section 179 under the 'HIRE Act of 2010' - the enhanced limits under the 'Jobs Act of 2010' - and the recently enacted 100% Bonus Depreciation under the 'Tax Relief Act of 2010' - you can basically write-off 100% of all the equipment and software your business needs to buy or finance this year!

Best reference in simple language I've seen:  http://www.section179.org/  If you use their information--you are only getting a part of the story. When you send in our form you will get back a detailed business plan showing you the rest--cash flow and tax advantages beyond the first year. Also, recommendations on exit strategies which effect the amount of, or if there will be any tax recapture. Contact us for full detials.

So, what does all of this mean for those wanting to set their boat up as a business in our Boat as a business™  program?

If you would like more general information on our Boat-As-A-Business Plan, and haven't seen the basics yet Go here.

First of all, perhaps nothing!

 Uncle Sam-boatsStart at the end! That's right this is one set of planning where you start at the end and work forward to now. You need to consider your ultimate goals first. Typically, they may look something like this:
1. I want to retire in 2,3,5,7 years and want to build equity with tax savings and equity.
2. I am a little further out. I'll get an interim boat now, and roll this over (kind of like a like-kind exchange in real estate), and later, convert that second or ultimate boat to personal use.
3. I'm not sure, but like the idea of the management company doing the work while I enjoy the boat when I want and I'll have a plan in place to insure that tax recapture is minimal or non-existent.

The questions you need to ask and get answered include:
1. When is the best time to order so I reach my goals in a timely way?
2. Can I equip it how I want? Keep it where I want? Use it when I want? (Hint, not only can you, you need to in order to qualify for the tax advantages.
3. How much 179 or bonus depreciation should I take the first year -- that is, "What is consistent with my exit strategy?" What are the things I need to do to qualify for the active tax advantages?
4. What will the business plan look like?
5. How do I minimize or eliminate my risk of audit?
6. Am I qualified for appropriate financing, and does this approach make sense from a tax point of view?

When you fill out our form, join one of our seminars, or set up a phone or in-person appointment, the answers will become clear and the decision easy. Uncle Sam truly wants to support your new business. That business will help grow the economy and create jobs--just like any other small business--and that folks, represents about 70% of Americas business--exactly the ones that IRS wants to encourage
Meanwhile, these available tax deductions, combined with the potential income available, could cover 80-100% of your boats cost with under 50 days of charter. With available financing and available rebates, your downpayment could be 15-20%, and your cash flow $0!

How might these new tax laws help you?

If/strong>, for any reason, you need a huge tax deduction that can offset income from other sources... For example:
1. You are at the top end of the tax table.
2. You have, or are anticipating a big increase in income this year.
33. You have a huge capital gain from real estate, stock options, or whatever--these deductions can offset your active income and minimizYou purchase a $500,000 boat (and have a marginal tax bracket that would justify a large write off--25% or greater-combined federal/State):Investors tax savings with a boat
For example, you could take a $250,000 179 deduction
You then get the first years depreciation (based on the last quarter convention, MACRS) 10% of the basis from above--another $25,000.
In other words, a total deduction this year of $trong>254275,000-rong>THIS YEAR!
ButBut, as I said, you can take any portion you need of all of this and you need to factor in your exit strategy. We can show you exactly how it would work, based on your situation.

This year, or next?

No one can tell you what will happen next year. Two things are true:
1. We know what we can count on this year.
2. Because this year's tax advantages are so favorable, boat availability is already getting scarce. You have no time to lose. Get the information you need now--see the ways we can help below.
3. All of the leading economists are predicting substantially greater inflation coming--boats historically go up in price annually at about twice the inflation.

BOTTOM LINE: At least find out what your options are, and how this program can help.

Putting it together...

When you set your boat up as a business you get income and tax advantages. The great thing about our (Boat-As-A-Business ™) BAB plan, compared to a Charter Company plan, is that you only need 5-7 weeks of charter income combined with tax advantages to cover 80-100% of costs. You don't need to charter excessively and have your boat get the wear and tear it receives in a Charter Company Plan. You can have the boat equipped the way you want it and you can use it as much as you like--you do need to find out more about all of this... How much in tax advantages?

From a tax point of view, there are two aspects. Advantages the  first year (when you put your boat into  service) and the longer term benefits. The first year you can qualify for the 179 expense allowance of up to $500,000 + take bonus depreciation, as needed.. See example above.

The new tax stimulus program offers tremendous benefits and tremendous flexibility.

A note on the Charter Company plans--concerning taxes...
The over-riding factor is that in these programs, you must commit to an agreement that turns over control to the management company, and the agreement is for an extended period--constituting a lease. These two factors alone, disqualify you from getting the active tax advantages available in our plan. We'll explain more when we meet.



The first step is to calculate or find your "marginal tax rate". Once you do that, you T size=1>can figure out what your marginal rate will be for the tax benefits to follow, and thus what your tax savings will be.

Tax Calculator

Figure your tax bracket!  Click here. Find your marginal rate now, and then apply as much of the  tax advantage as you like to watch your marginal rate reduce and the effect on reducing your tax liability. For example, say you have $400,000 in income with $100,000 in deductions currently--make the calculation, and then increaseTax Calculator your deductions $100,000, $200,000 or more
. You can print your results and they will look something like this:
Now you can qualify for the 179 expense allowance of up to $250,000. Use as much as you need, and then use the rest of the tax advantages over subsequent years.

Get the complete information here.

If yIf you want a more detailed business plan and a complete explanation of the tax advantages and how to qualify for them--this includes information that your tax advisor may need to better understand how this program might work for you.

Our Tax Planning Guide will include:
1. How to qualify for active tax advantages.
2. What's different with this approach and a charter company plan.
3. The two keys to qualifying--this will make your tax advisor say, Ahhh...
4. The information your tax advisor needs to understand whether this program might work for you.
5.How to avoid an audit.
6. Record keeping requirements.
7. The 7 IRS tests.

Bonus links will:
A. Explain in detail how the plan works.
B. How your business will operate
C. How the management company interfaces with you.

To get access to our confidential information and a custom business plan-please, please go to our web page,   fill out our form. You will receive a detailed summary business plan showing projected tax advantages, cash flows and more. Find out exactly what the benefits are to you.

NOTE: If you really need tax advantages this year we suggest you fill out and send in the form and then call Eric

If you have any questions, please call.
 

For details 410-263-2311 info@bayacht.com
Hours: Mon-Fri. 9:00-5:00 Sat: 10:00-4:00  Sunday by appt.
 
Boats available in our program: Jeanneau Monohulls 36-57', Fountaine Pajot Catamarans--Sail 36-65', Power 35-55', Selene Trawlers, Jeanneau Power Boats 32-50' and Floating Homes 42-58'.
See them all here.
See our newsletter for the latest news, here.
 

Ask your tax advisor for help now?

e
Maybe, maybe not.

Ultimately, it is wise to talk to your tax advisor to optimize your situation.

However, the decision itself, in the end, is yours. Your tax advisor is busy and may not fully understand this program. Right now, (s)he probably doesn't have time to figure it out.

We've found that about 50% of tax advisors will say no to the idea without fully understanding why this approach works. (The other 50% enthusiastically endorse the idea--if you can't find the right advisor, we can refer you to one.) Keep in mind, we've already helped over 670 people set their boat up as a business--successfully.

Far from encouraging an audit, when you follow our guidelines, you are very unlikely to be audited--however, if you are, as 3 others have been, you will have the tools and knowledge to get through it simply and easily. To our knowledge, not one of the people who followed our guidelines lost a single dollar of tax deduction claimed!

We can recommend a knowledgeable tax advisor when you are ready to take this to the next step. All of the information that we ask for, including the financial application and business plan are going to be required by your tax advisor also--so send the information to us, and we'll forward it to your tax advisor at the appropriate time along with detailed information to help him/her better understand how this program will work for you.

The disadvantages of delaying a decision...

Timing is everything!
If you can get a boat for all, or a majority of the season next year, that's ideal (ask us what's available). You can qualify for a full years of tax advantages and get income to cover cash flow the year you place the boat in service.
There are other scenarios that work, including getting a boat in the fall and having it go directly to the Islands.

Talk to us to better understand how to optimize your situation. But, if your tax advisor isn't ready to talk right now--don't delay. Keep moving forward and let him catch up later. The most important thing is that you get and understand the information that we can provide. 410-263-2311

Get the information that you need...

If you would like more general information on our Boat-As-A-Business ™ Plan, and haven't seen the basics yet Go here.
If you want a summary business plan --please fill out this form here.

To get access to our confidential information and a custom business plan-please, please go to our web page, fill out our finance application and  fill out our form.
Join us for a free 1.5 hour seminar in Annapolis. Information/schedule.

The perfect storm of opportunity exists now. Read this compelling article that sums up a number of expert opinions about why now is the right time to get a boat--especially in our program. Click here.

About Bay Yacht Agency

In Annapolis since 1972, still owned and operated by the founder, Eric Smith. We're located on the harbor, in the U.S. cruising capital, Annapolis. We have helped 1,000's of owners customize their boat to meet their specific requirements. We offer full yard and commissioning services, Sailing courses and charters, financing, insurance and complete services in every category.
 
Visit our capable and knowledgeable professionals at our office On the Harbor, 2nd and Spa Creek (next to the Chart House Restaurant, in the Yacht Haven Marina.) Email: info@bayacht.com Phone 410-263-2311.
HOURS: Mon-Fri.: 9:00 to 5:00 Sat.: 10:00-4:00 Other times by appointment.
To meet us any time, including outside of the hours shown, please give us a call at our office anytime: 410-263-2311

Bay Yacht Agency, Annapolis office