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Tax advantages to being a charter captain

Old 11-24-2019, 07:28 AM
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Default Tax advantages to being a charter captain

Good day
I am considering retiring and starting a second career, getting my captain's license.. Not concerned as much about generating additional income as I am filling time. I have decades on the water, mostly offshore fishing. I love taking people fishing.
I am curious what legal tax advantages there are to being a captain. What expenses can be written off, gas, boat payment, tackle, etc?
I am not doing it for tax reasons, just curious.
thanks
dean
Old 11-24-2019, 07:51 AM
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Legal, not much if any. Not to paint with a wide brush but many do a little side chartering and then write off all boat and gear related costs even though a very high percentage is for personal use. Just like the $75k diesel dually used to haul the the boat and RV but bought for the “construction” business that never had as much as a box of nails transported in the bed.
Old 11-24-2019, 08:11 AM
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Agree there is not much legal benefit. Do it to keep busy and have fun. IRS frowns on hobby business.
Old 11-24-2019, 08:57 AM
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You won't like what happens when the IRS audits you if you are not seriously pursuing chartering as a business. In general, you will need to show a profit in three out of five years to avoid being characterized as a "hobby" and having your expense deductions disallowed. The fact that you cannot show you worked in the field prior to starting your new business (for example as a mate) and were in fact fishing as a hobby won't help.

That being said, there is no law against having fun while you work. If you will genuinely enjoy fishing with charters and can get out on the water that way while making some money, running a charter business might be a great thing to do as a retirement career. You will need to be very careful about documenting expenses and avoiding as much as possible splitting items between personal and business. For example, if you never take personal fishing trips on the boat you use for charters, you will be less at risk for having the IRS question how expenses relating to the boat are allocated. If it is 90% business and 10% personal, you will be more at risk, and going down that line, if it were 75% personal and 25% business, you would be waving a big red flag at the IRS.

If you are serious about this, of course the best thing is to get a decent tax accountant up front to help you set things up and advise on the rules you should follow. Finally, I don't know where you would be located but it can be a very competitive business in some regions and tough to generate a profit because you are not the only person who thinks chartering is a good way to pay for a fishing hobby.
Old 11-24-2019, 09:00 AM
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Originally Posted by Dean Nelson View Post
I love taking people fishing.
That may change on bad weather days when nothing's biting.

Originally Posted by Dean Nelson View Post
I am curious what legal tax advantages there are to being a captain.
None. If you mean operating a charter business, then you may offset other income with your losses ... for a while. Eventually, consecutive years of losing money challenges the notion that you're operating a business, and strongly supports the notion that you're merely engaged in a hobby ... negating those earlier write-offs. The financial impact of being caught in that web could be ugly.

Originally Posted by Dean Nelson View Post
What expenses can be written off, gas, boat payment, tackle, etc?
Add depreciation, crew salaries, insurance, maintenance ... just about everything.
Old 11-24-2019, 09:25 AM
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Thanks for the feedback
As expressed, my primary interest is to take people fishing as I enjoy that immensely. That being said, if there are legal tax benefits, that's great.
I have been on the water for 40 years, and make at least 25 to 30 offshore and canyon trips a year.
Just looking for something to do that I really enjoy.
My primary port is NJ, but I also fish Florida. I have thousands of hours on the water.
Old 11-24-2019, 10:11 AM
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I originate mortgages and the vast majority of the self-employed (not all, but the vast majority) don't show squat in taxable income.

Besides the obvious write-offs (i.e. boat payment, boat insurance, maintenance, licenses, registration, taxes, advertising, gas, bait, fishing tackle, ice...) you will be able to write off your personal truck since I am sure it will be used for the business and that includes the truck payment, insurance, registration, maintenance, depreciation, etc.. (might as well throw the wife's car it there too for good measure).

Oh, and don't forget the business use of your home, cell phone bills (including the whole families), all meals eaten out since I am sure they were business related as well as your vacations, repairs to the house, basically anything you write a fricking check for is fair game.

As for the IRS auditing you, you have got to be kidding me and the blatant abuse of our failed tax system is the main reason this county is now over $23 TRILLION in debt. Welcome to the club!!

Old 11-24-2019, 11:39 AM
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Originally Posted by anonymous_coward View Post
I originate mortgages and the vast majority of the self-employed (not all, but the vast majority) don't show squat in taxable income.

Besides the obvious write-offs (i.e. boat payment, boat insurance, maintenance, licenses, registration, taxes, advertising, gas, bait, fishing tackle, ice...) you will be able to write off your personal truck since I am sure it will be used for the business and that includes the truck payment, insurance, registration, maintenance, depreciation, etc.. (might as well throw the wife's car it there too for good measure).

Oh, and don't forget the business use of your home, cell phone bills (including the whole families), all meals eaten out since I am sure they were business related as well as your vacations, repairs to the house, basically anything you write a fricking check for is fair game.

As for the IRS auditing you, you have got to be kidding me and the blatant abuse of our failed tax system is the main reason this county is now over $23 TRILLION in debt. Welcome to the club!!

Not sure I would take tax advice from this fellow. If he doesn't think the IRS audits self-employed people who charge their personal trucks to their business, etc, etc, he has no clue as to how the screening software operates to flag returns. I am a board member of a very large mortgage lender and those self-employed mortgage brokers who don't "show squat in taxable income" get audited with regularity. In fact, at least from my perspective one of the big problems with the IRS is that it spends too much time chasing down little guys and not enough on the really hard cases of tax avoidance involving highly sophisticated wealthy individuals and corporations.
Old 11-24-2019, 11:45 AM
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"Taking people fishing" is WAY different than being a good charter captain--rigging everyone's lines, baiting hooks, taking fish off, spending the day with "Know-it-Alls" and "Know-Nothings" and trying to make it an enjoyable experience for everyone on board.

Maybe find some of the Veterans or Handicap fishing events--I believe you can write off some expenses related to that--fuel, bait, etc. Ask your Tax Guy--maybe more if you have proper license for charter.
Old 11-24-2019, 06:55 PM
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As a CPA with charter boat clients in the past and present I can tell you it is not a good idea to do it on tje side to create a loss. You have to be generating revenue, point black. Then your expenses related to generating that revenue has to be a necessary and reasonable. Buying a new boat and truck to generate a few thousand in revenue wont cut it. Also you dont want to be self employed on Schedule C but rather start an S Corp, get licenses, insurance, dockage, etc in name of corp, not personal. Show a profit by generating revenue over expenses. Advertise and spend some $ on it to generate revenues. There is no tax law that says your business has to be profitable & successful, but you better try hard to do so if you want to run your boat & fishing expenses through tje corp
Old 11-24-2019, 07:56 PM
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Wow, amazing were internet conversations go. never implied intentionally planning to take a loss. In fact, if I can make a few bucks, great. I'm not one of those guys who cuts corners to save a buck. Never even crossed my mind. If I could take some deductions, great, if not it wont change anything.
Was just curious about deductions, that's all
It was just a simple queston
Old 11-24-2019, 09:35 PM
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Originally Posted by Dean Nelson View Post
Wow, amazing were internet conversations go. never implied intentionally planning to take a loss. In fact, if I can make a few bucks, great. I'm not one of those guys who cuts corners to save a buck. Never even crossed my mind. If I could take some deductions, great, if not it wont change anything.
Was just curious about deductions, that's all
It was just a simple queston
IRS rules states must be nevessary and reasonable towards revenue generating activities
Old 11-25-2019, 04:15 AM
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Originally Posted by Dean Nelson View Post
Wow, amazing were internet conversations go. never implied intentionally planning to take a loss. In fact, if I can make a few bucks, great. I'm not one of those guys who cuts corners to save a buck. Never even crossed my mind. If I could take some deductions, great, if not it wont change anything.
Was just curious about deductions, that's all
It was just a simple queston
I don't think anyone was suggesting that you were planning to do anything improper. In my case at least, I thought it important to let you know that you need to be very careful in documenting expenses and structuring your business or the IRS may challenge your deductions and impose additional taxes and penalties on you if they claim it is a "hobby" and not a real business. That's not a reason for you not to go ahead and set up a charter business if you think it will be fun and a good retirement job for you. All folks are saying is just as you wouldn't cut corners on safety gear for your boat, don't cut corners on getting good tax planning advice if you decide to go for it. And yes, to go back to your original question, there are a whole host of expenses that could offset the income generated by the charter business, as well a depreciation expense for capital equipment such as the boat. It would be harder to sustain offsetting other income routinely because if the charter business lost money year after year, as noted above you would run into the presumption that being unprofitable for two out of five years is an indication it is a hobby and not a business. This comes up all the time with the IRS for people who try to turn their vacation home vineyard, horse farm, cattle ranch, etc into a business to deduct expenses.

Last edited by ClassicGuy; 11-25-2019 at 04:21 AM.
Old 11-25-2019, 04:39 AM
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Really Dean the internet for tax advice. Yes you can run a charter business and offset expenses. Many teachers do that summers, holidays and so on. Get charter license. Take me out hunting the bft now to see how much you like dealing with people as the first step. I volunteer to be a guinea pig.
Old 11-25-2019, 04:41 AM
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Why not?
After all we have all learned here that if you take a sandwich for the ride you need license and business liability as well as equipment on required by commercial vessels.

Keep great records. Use CPA to learn how. Like any venture that could also be a hobby your going to need to show a profit 3 of 5 years. Actively seek out business.

Most anything you do with relation to the boat or business is a possible deduction including directly related milage. I think that is about .56 per mile now. Your probably going to loose some to start which can offset tax on other income. Unless your full time and full of energy most years you will still not make big profits likely just give back for the years it offsets other income.

A plus is your all above board with good insurance, decent equipment and boat n good repair. Of course different locales offer better and less opportunity to profit.
Old 11-25-2019, 04:44 AM
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I don’t know that it’s worth the effort to be part time. I thought about it for harbor cruises etc. Ins alone foe me would have been 4x more. Then factor in strangers on your boat taking liberties as ‘paying customers’.
Old 11-25-2019, 05:08 AM
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I am looking at it as well for a retirement gig. Insurance costs are way higher, repacking and certifying your safety gear every year in stead of every three, new emergency training requirements, I am looking at total annualized fixed costs and seeing how many trips I need to make to generate positive $ flow in our 7 month season (just to see if it is feasible on the math side). Then I will think about the people side of it.

Then I will see what it costs to charter someone's boat once a week for seven months. Wonder which way I will go?
Old 11-25-2019, 06:46 AM
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Originally Posted by Smoke n Mirrors View Post
As a CPA with charter boat clients in the past and present I can tell you it is not a good idea to do it on tje side to create a loss. You have to be generating revenue, point black. Then your expenses related to generating that revenue has to be a necessary and reasonable. Buying a new boat and truck to generate a few thousand in revenue wont cut it. Also you dont want to be self employed on Schedule C but rather start an S Corp, get licenses, insurance, dockage, etc in name of corp, not personal. Show a profit by generating revenue over expenses. Advertise and spend some $ on it to generate revenues. There is no tax law that says your business has to be profitable & successful, but you better try hard to do so if you want to run your boat & fishing expenses through tje corp
This^^^^^^^^^

I can also tell you it's not hard to show a loss in the Charter Business. One blown engine and your losses may out weigh your tax benefits.
Old 11-25-2019, 09:14 AM
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Hire a good CPA . Just remember even if it's a deductable you still have to pay for it.
Old 11-25-2019, 09:18 AM
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Be careful turning your hobby into a job, it can be a great way to drain the fun out of your hobby, it can also be a great way to make a living, take it slow and start it sooner rather than later and take your tax man out on the boat for a "business meeting".

​​​​​​I've seen a lot of guys dive in and get overwhelmed and burnt out in a couple years and never get back on a boat, learn when to say no and when to just take the family and friends out to recharge your batteries.

Last edited by O.B.1; 11-25-2019 at 09:24 AM.

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