Yacht Ownership 101: Advice and Information for New Yacht Owners Operating Their Yacht as a Business
You love sailing on yachts, so much–in fact–you want to make it a business! Although you’re passionate and experienced, you want to be strategic about your new business; you are looking for advice, counseling, and help with management. You want to find someone that will help you make your business a success—not someone just looking to take over and make money.
Brenda and I started iYachtClub’s management business with the desire to introduce individuals to the joy of yacht charter ownership. We felt like too many people were being taken advantage of, offered bad advice, and generally unhappy with the treatment of their yacht. From yacht management services to just straight, good advice we want to help you make your dreams a reality. Explore our array of professional services such as management services for existing yachts, basic advice that we term ‘yacht ownership 101’, business owner’s success stories, and more.
Here to Fulfill Dreams of a Successful Business
iYachtClub works with investors who want to realize their dream of owning a yacht – outright or fractionally. As part of our managed fleet of crewed charter yachts you can:
- Generate positive net returns based on your specific goals.
- Put small business tax laws to work for you.
- Use your yacht as much as you would like.
- Join other yacht owners for fun, exciting flotillas in exotic locations.
- Have your yacht maintained to the highest possible standards?
- Retain full access and control of your yacht’s business with industry revolutionizing cloud-based systems.
…and more! Our processes have been refined with private yacht owners in mind—so that you get the profit and freedom you need for a successful business.
Crewed Charter Yacht Business Services
Back in 2008, when Brenda and I left the “real world” for the islands, we did so with great advice from our legal and accounting team. They made sure that our new yacht business was set up correctly to both protect us, as well as take advantage of available tax benefits. So, we have not only been able to guide and advise our yacht-buying clients but have personally benefited from what we preach. We found that some yacht owners use our services as an avenue to acquire the cruising yacht of their dreams for retirement at an a huge discount. Others like us, use the yacht charter revenue together with the business tax deductions to reduce the costs of owning their yacht while getting to use and enjoy her. Whatever your goals, our team can help set up your charter yacht business in compliance with tax authorities and help meet you’re individual financial and personal goals.
- Once you have selected a yacht to purchase, we can help you set up your “Charter Yacht Business”. This will ensure all allowable business tax deductions and other tax advantages as well as ensure that the charter yacht income will more than cover the cost of boat ownership.
- Our systems are designed for flexibility to enable the owner to choose from various yacht models and layouts from the different top manufacture.
- In our experience, charter yacht management, together with active participation by the owner, is a great way to reduce the cost of yacht ownership and even create fantastic returns on investment. It is the perfect opportunity for anyone looking to buy a new yacht.
From purchase to charter—you are looking to get a new charter yacht business up and going. Unfortunately, most of the companies you may have come across are more interested in selling you their yachts than helping you find the boat that is best for your goals. You end up talking to a salesperson when you were looking for some objective advice. We don’t “sell yachts”, and we don’t charge commissions. The success of your yacht is critical to our long-term success, so we help and advise, for free.
Management for Existing Yacht Owners
Take the stress out of your charter yacht business; you don’t need to handle the management alone. Sometimes finding the right, qualified crew and captain, booking guests, and managing all of those tedious business tasks can take the excitement right out of your business. We step in to handle all of these tasks, as well as the day to day accounting, bringing back the joy of owning your charter yacht business.
Management of Fractionally Owned Yachts
For some, sharing their expensive “toys” makes more sense than an outright purchase. Unlike “time-sharing”, we help small groups of individuals acquire yachts and run their crewed charter business. You and the group own and control the asset. Read more about fractional ownership here – (sunny, link to fractional).
Whether you have a yacht, are looking to buy one, or are just interested in getting involved with a charter yacht business, you need an expert on your side. Don’t wait—make your dreams a reality with the confidence of an expert. Contact iYachtClub to get started today! (can you create some sort of form here, where they can submit questions/contact info)
Yacht Business Tax Advise
The new 2018 tax laws, and specifically Section 179, have expanded the opportunities available to investors buying yachts for use in the crewed charter industry.
What is Section 179 business tax deduction and how does it affect you?
Section 179 Deduction
Section 179 is not the complicated tax code. Essentially, Section 179 of the IRS tax code allows businesses to deduct operating expenses and depreciate the qualifying equipment purchased or financed during the tax year. When a business buys new equipment, the purchase price can be depreciated using the current MACRS Scale which is an accelerated depreciation schedule.
The original target of this legislation was tax relief for small businesses – and millions of them are taking action and getting benefits. If you are in the market for a new yacht, the Section 179 rule should definitely be a part of your strategy.
According to this law, when used as part of a business, you can legitimately divert taxes that you’re already paying into the yacht. This, in turn, creates equity in your new yacht. Therefore, buying a new yacht and placing it in charter service as a business, makes total sense to reduce the cost of ownership and turn tax advantages into an investment. It is vitally important the business is set up correctly and the operation is structured to qualify for the tax benefits and remain in compliance going forward.
For more details on limits and qualifying equipment, please contact us directly so we can help you evaluate and understand the possibilities.
Setting Up Your Business To Comply with Tax Laws
- Develop a 3 to 5-year projection, tax schedule, and business plan
- Find and help acquire the right yacht, one that will work successfully in charter
- Understand the difference and advantages between our Guaranteed Income Program and our maximum return, open accounting model.
- Setup the new business to be in compliance with current tax laws.
- Guide you on how to qualify for tax advantages that can offset your ordinary income.
- Develop a good exit strategy from the beginning
- Manage the yacht, with your active participation, including crew management, maintenance management, and marketing.
We have developed a basic overview of how to qualify for tax advantages. There are many things to consider.
Establish a Yacht Business Plan.
Find and choose a charter management partner that understands the guidelines and will book the yacht for charter. It is critical for the business to be set up correctly from day one as any misstep may disqualify the yacht business. When this happens and the intent to make a profit cannot easily be proven, the less favorable hobby loss rule may apply.
Set Your Yacht Up as a Business in an LLC or Other Pass-Through Entity.
The business tax advantages should directly offset the income from your boat business activity as well as the taxable income from any other active source including your regular job (W2 income). Adjust your withholding and use the tax advantages to offset cash flow immediately!
The tax advantages include writing off:
- expenses for inspection visits to the boat
- bonus depreciation
- MACRS or straight-line depreciation
- boat show expenses to sell boats
- familiarization trips on the boat for the purpose of understanding the cruising ground in order to sell charters
Consider Your Ultimate Goals and Exit Strategy
- Retirement within 2,5,7 years: In this case, you want to build equity with tax savings.
- Longer term strategy: Purchase an interim yacht, sell it at the end of the period and convert your second yacht to personal use (like-kind exchange in real estate).
- Offsetting the cost of ownership: Let iYachtClub take care of the day-to-day management of the yacht but still remain actively involved in other areas of the business like marketing, accounting etc. to offset the costs of owning the yacht.
Typical “moorings” style, ownership programs do not qualify for current tax advantages. Only opportunities like ours, that allow you to “actively” stay involved afford the maximum advantages.
You can purchase your yacht to your specifications including an owner version layout, set the yacht up as a business, operate it with the help of iYachtClub and have your yacht at least partially or fully paid off at the end of the contract period by applying business revenues and tax advantages. Once your yacht business is set up correctly, you stand to benefit greatly from this concept, but it does require work on your part.
Limits and Qualifying Property
As always, there are limits to Section 179. The underlying limit is that the total cost of the equipment you are deducting cannot exceed the total amount of the taxable income you are reporting. This means you cannot have huge equipment deductions while also showing no income. Also, you always need to check your local state tax laws in regards to expensing equipment purchases.
FAQ About Yacht Ownership and Tax Advantages
if you are a US taxpayer, enjoy sailing and want to own your own yacht at a substantially reduced cost, iYachtclub’s system and current laws will work for you. Although the acquisition of a new yacht may be an effective business tool to take advantage of these tax rules, the tax benefits must be carefully planned, documented and implemented to make sure that it can withstand scrutiny.
Many of your questions and doubts will be answered in this list but if not, please feel free to give me a call or email me.
Should I Own the Yacht Personally or Through A Corporation?
It is better to own the yacht in a corporation because it reduces personal liability. It is a smart thing to do when running the yacht as a business. If you place the vessel in an LLC the tax benefits flow through to you personally.
Can I Legitimately Take Tax Deductions?
If you are actively involved in the business and meet the IRS tests for active participation, then it is a business and you can legitimately take the deductions and benefit from it. You need to show active participation as well as the ability and the intent to make a profit.
What Type of Active Participation Is Required?
The most common test is that the owner does a minimum of 100 hours and more than any other one person. If you do a website, attend trade shows, do familiarization trips and technical inspections of your yacht, you will log far more than 100 hours.
How Do I Meet the Requirements?
In the course of running the business:
- Attend trade and boat shows where the yacht is promoted for charter
- To be effective and facilitate the sale of charters, the owner would need to do “familiarization” trips to have good knowledge of the product being sold which is the cruising ground (this is much like a travel agent who travels to destinations that they promote and sell packages into).
- One familiarization trip per year would log a minimum of 50 to 100 hours. It is also reasonable to have an annual inspection of the yacht, which would require traveling to where it is located.
Will Doing This Trigger an IRS Audit?
There is always the chance of an audit when a large deduction is generated, if proper records are kept and the owner does actively participate with the intent to make a profit then the standard is met and should satisfy scrutiny. Your CPA is the best person to answer this question because personal circumstances differ from person to person.
What Amount of Money Must I Put Down?
The deposit required by most lenders is 20 % so the cash out would be 20% of the full purchase price plus start-up cost that typically run less than $20,000.
Is The Boat Insured and How Am I Protected?
The boat has comprehensive insurance in the name of the owner or the LLC from the time the keels touch the water. If there is a loan the lender is recorded as the first loss.
What Tax Reporting Is Required?
Your CPA will be able to answer this but generally, the LLC would generate a K1 which would be incorporated into the tax return.
Do The Tax Advantages Flow Through to Me Personally?
Yes, they do.
Is There Recapture On the Tax Advantages When I Sell the Boat?
Yes, there is if you sell the yacht outright and the rate is at ordinary income. If you keep the vessel for personal use after the program then this should not be an issue but check with your CPA for your personal situation. The third alternative is to trade the yacht in and do a “like kind” exchange in which case there is no recapture.
Island R and R, https://www.iyachtclub.com/yachts/caribbean-sailing-charters-catamaran-island-rr/, purchased from the Moorings bareboat fleet, this yacht was re-invented as a custom luxury yacht and made a true net profit in her first year in service.
Zephyr. https://www.iyachtclub.com/yachts/luxury-crewed-yacht-charter-bvi-aboard-modern-zephyr/ Purchased new, this yacht produced over $150,000 net positive cash flow in her first year in crewed yacht charter.
Vivo. https://www.iyachtclub.com/yachts/affordable-luxury-caribbean-yacht-charters-catamaran-vivo/ Purchased many years ago and used personally to travel around the world, Vivo was converted to a crewed charter yacht and produced real cash profits in her first season.
Mango. https://www.iyachtclub.com/yachts/mango/ Purchased to be owner operated in the iyachtclub fleet, Mango defied the odds as a small charter yacht and is becoming one of the most successful crewed yachts in St. Thomas.
Bella Vita. https://www.iyachtclub.com/yachts/bella-vita/ Has operated successfully, and profitably in the crewed yacht industry since 2009. She has been profitable in every year of service.
The Ultimate Guide for Turning a Bareboat, Pre-Owned Catamaran into a Money-Making, Luxury Crewed Yacht Charter
To succeed as a yacht charter business, it is important to start out with all of the advantages on your side. You need to choose the right boat and then know how to transform that into a profitable charter yacht. We have a three-part series (more to come) that explores the basics of yacht charter ownership from finding the right boat to purchase, to having her ready to welcome guests aboard. The video follows one yacht from our very own fleet from purchase to transformation.
Yacht Shows and Business Events- Participation and Networking
Yacht shows are both a time to stand out and a massive opportunity for networking with the top charter yacht vacation brokers in the industry. A successful yacht show can lead to a jump start on the year’s bookings. We assist our managed yachts and crews with all of the details that go into creating a stunning presentation at the yacht shows. Take a look at the yachts that participated in last Fall’s yacht show here:
A little taste of the St. Thomas 2016 Charter Boat Show