Can I buy a boat through my business? You may already have assets such as trucks, airplanes, cars, computers, equipment, and even real estate held in your business. And, yes, you can buy and own a boat through your business even if your business has nothing to do with boating.
However, you have to demonstrate a legitimate purpose for the boat. You could also enjoy the tax benefits of buying a boat through your business.
Can I buy a boat through my business?
Your boat can be a business expense, so you can acquire it through your business. You only require a reason for buying your boat as a business expense to legitimately keep it.
Commercial and recreational fishing companies have a clearly defined reason for needing a boat for some reason. The situation is not farfetched for a typical company such as an accounting office, manufacturing business or marketing firm.
But the reason is not so obvious even though it exists.
Your reason to purchase a boat through your business can be motivated by entertainment. However, some tricky IRS rules determine how you use the boat.
You cannot deduct any expense for using your boat for entertainment purpose, but can deduct some expenses according to the IRS.
While you can buy a boat using the money from your business, and for business purposes, you might not be able to write it off as a tax deduction.
You may, however, be able to deduct other related expenses when using the boat. For example, beverages, catering and food may be deducted. For food and beverages to qualify for deduction, you must purchase them separately from the entertainment or state them separately on the bill.
You can also have tax deduction for fishing bait or lures your business bought for and used to entertain clients or employees. You only have to carefully keep a record of all your expenses.
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If you buy the boat with the specific reason of entertaining employees, you must show that its use has a legitimate business purpose.
For example, while team-building activities for employees are deductible, week-long fishing expeditions for the primary owner may not be a legitimate reason.
You could also use your boat to entice new employees, but ensure to properly document everything.
Also, a boat you buy through your business must remain a primary business asset. This means that you cannot use the boat for personal cruises, and then take a one-time yearly employee fishing and claim it as a business asset.
You just have to be honest about using the boat but the IRS may have you under scrutiny.
What now that entertainment expenses are no longer deductible?
Entertainment expenses are no longer deductible after the 2017 Tax Cuts and Jobs Act (TCJA).
This exclusion also stops you from deducting expenses for depreciation and operating expenses for your boat.
Nonetheless, you may able to deduct business expenses like meal at 50% as part of the boat-hosted entertainment event. This includes the catered food you serve to customers on the business-registered boat.
You can deduct meal expenses at 50%. The meal has to be ordinary (not extravagant or lavish) and necessary business expenses to qualify as deductible. As mentioned earlier, you will report them separately from the entertainment.
Your boat as a business
Using your boat as a business can get you some tax benefits from this business.
In terms of depreciation, the boat can be depreciated as a business asset if it is eligible as a business asset.
In terms of expenses, expenses for the boat operation can be deducted for business purposes. You can include maintenance, insurance, repairs, gasoline and mooring fees in the deductible expenses.
The important thing is to be able to document and provide the documentation for using the boat for business purposes.
You create the documents:
- At the time of the event, and
- Include specifics such as when the boat was used, those it was used for (including their names and titles) and the specific business purpose it was used to accomplish.
Keeping your boat as listed property
Your boat belongs in the IRS category of business assets known as listed property. Other items in this list include autos, airplanes, computers and other assets with both business and personal uses.
You must use your boat more than 50% of the time for business purposes to deduct any costs associated with it since it is a listed property.
For instance, you need to document the percentage of time you use the boat for business if you use it for charter business purposes and personal reasons.
Personal use is an income
When you show that the boat has been used for more than 50% of the time for business as a business asset, personal use becomes a benefit, and you must pay taxes on it.
Depreciating a listed boat
There are requirements for depreciating listed property like your boat. You would use the modified accelerated cost recovery system (MACRS) and the straight-line method. There are other requirements too.
Read also: New York tips to register a no-title trailer
Tips to avoid IRS scrutiny
If you buy a boat through your business for business use, you should be able to show that you are running a legitimate business, not just taking out fishing.
Make sure to keep good business records showing that you intend to make profit for the use of the boat. Also make the profit as proof to avoid IRS scrutiny under hobby loss rules.
If the IRS determines your use of the boat as a hobby, you can only take expenses in the amount of your income for the year.
If you are not okay with keeping detailed records of your business use of the boat, buy the boat personally. This, however, gives up the depreciation and expense deductions. It also saves time with your tax advisor. You could always use the boat occasionally for business.
Other ownership options you can leverage include setting up the ownership as a partnership or co-ownership.
The same tax restrictions apply even if you start up a business to buy a boat. Meanwhile, tax laws may change, and business situations are different, so check with your tax professional before purchasing a boat through your business.