If you’re thinking about buying a boat as a business asset, make sure you understand everything you need to know about your options and tax deductions. It’s important you make sure that this expense is deductible. These same tax regulations also apply to airplanes, motor homes and other vehicles and facilities that are similar.
Keep reading to learn everything you need to know about buying a boat as a business asset.
Is Buying A Boat Considered An Entertainment Facility?
Yes, according to the IRS, buying a boat is considered to be an entertainment facility, and here’s what that means.
An entertainment facility is any type of property you rent, own or use for entertainment. This could be a hunting lodge, yacht, swimming pool, tennis court, airplane, hotel suite, vacation resort, apartment, or car.
The IRS allows a business to deduct expenses for entertaining on your boats. This includes beverages, food, catering, gas, and fishing bait. However, you can’t deduct the direct expense of using the boat for entertainment.
Typically the IRS won’t let you deduct any expense for the use of entertainment, this includes an airplane or boat. This also includes expenses like operating costs such as rent, utilities, protections, and maintenance.
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Entertainment Expenses On A Boat
However, you are able to deduct out of pocket expenses like beverages, food, catering, gas, and fishing bait that you provide while entertaining on the boat. These are not considered to be expenses for the use of an entertainment facility.
Like other entertainment expenses, you need to be able to document that these expenses are directly associated with or related to your business. All entertainment expenses will be subject to a fifty percent limit, so only up to fifty percent of your allowable expenses can be deducted.
If you’re entertaining employees, you need to be able to show them that the entertainment on your boat is for a business purpose. Know that “team-building” might not fly with the IRS, and employees might have to pay taxes on those expenses.
Boats as Businesses
If your boat is used as a business, such as for hire, you can get tax benefits from this. Here’s how.
You can depreciate the boat as a business asset if it qualifies.
You can deduct the expenses of operating the boat for business purposes. Expenses like maintenance, gasoline, insurance, and repairs.
Document Business Use
You need to show documentation about how the boat was used for business purposes. This needs to include the time of the event and the specifics on when it was used, who it was used for (including names and titles), and what was the specific business purpose.
Personal Use Becomes Income
Once you established that your boat is a business asset, any personal use of the boat will become a benefit to you personally, and you will need to pay taxes on this personal use.
Deciding If You Want to Buy That Boat
It’s up to you to decide if buying a boat as a business asset is really worth it. This will depend on your business and your ability to prove you are using that boat for business purposes. For more business resources, check out our blog.