Many people dream of owning a boat at some point in life, no matter where in the country they live. While owning a boat is the dream, what people tend to forget is that they come with extra responsibilities, as well as special taxes. In most cities, individuals owning boats and other personal water-crafts are expected by law to pay personal property taxed based on the assessed value of the vessel, unless they are specifically exempt by the law.
If you own a boat or you plan on owning a boat, below are a few tax tips to assist you with tax deductions this tax season.
Tax Deduction: Mortgage Interest
Mortgage interest is the largest tax deduction you can get from owning a boat. It refers to the interest that you paid throughout that tax year to finance your boat. However, the law is a little complicated since not all boats qualify. You should not have sold or rented out your boat during the year that you are reporting on.
Tax Deduction: Sales Tax
This pertains to boat owners, however normally excludes yachts and other high-end water-crafts. When you are itemizing tax deductions, you can choose either income tax or sales tax. If you opt for sales tax, ensure that you keep all receipts received throughout the year safely. You can then deduct the taxes that were paid. Any sales tax you paid on your boat would apply in this area.
Tax Deduction: Business Expense
The only time a business owner is permitted to deduct business expense on their boat is when they do not use the boat for recreation or entertainment. The IRS is always keen to see your business expense habits, so you must be careful. If you are entertaining clients on the boat, you can also deduct a portion of the food expense.
For this deduction, the rules state that the boat owner must have reasonable expectation of deriving benefit or income in the future that results from using the boat. Since some boat owners abuse this deduction, the IRS requires full documentation of the following:
- All expenses
- Dates of expenses
- Nature of expense
- Occupations of individuals entertained
If you’re looking to upgrade your boat, there is the option to sell it or trade it in for a newer boat. There is also the option of donating the boat to charity to receive a sizable tax advantage. However, you can only deduct the fair market value of the boat and not the replacement value.
Navigating boat taxes can be quite complicated, especially if you do not have the expertise. When it is that time of year, it is advisable to work with a professional accountant who will assist you in navigating boat taxes. The experts at Bodine Perry are ready to help. Call (855) 851-8318 or visit www.bodineperry.com to get started.