AvMar Yacht Payroll & Accounting Blog

The Outer Continental Shelf and Why It Matters

By Tom Andrews, CPA

The Yachting Industry has long remained under the radar with regards to the Internal Revenue Service. While most industries have manuals and guide books that help navigate them through some of the more complicated aspects of their respective industries, the luxury yacht world has little guidance to fall back on. This is not to say that yachts and their crew members  are exempt from complying with United States income  and payroll tax law, it just seems that most other industries have had issues directly addressed by the IRS through directives or court cases that helps make sense of it all.  Every once in a while you will hear of the occasional yacht owner who has endured an audit because they were improperly deducting their vessel or the  crewmember who gets a letter from the IRS because they did not file their income taxes for the past twenty years but as an overall industry you really don’t hear much. Read More »

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Why You Probably Don’t Need a Company

By Tom Andrews, CPA

One of the more common questions I am asked of clients is “Should I incorporate”?   The answer to that question depends on a number of factors but in most cases the answer is “no”.  Normally the only maritime professionals that will benefit from forming a company are Captains that can meet the criteria set forth by the IRS to determine who may qualify as a contractor.  The criteria the IRS uses can be accessed directly at the IRS website under Topic 762 and Publication 15-A or Publication 1779.  It should also be noted that more and more vessels are coming into compliance with United States payroll tax law, this means that crewmembers are being W-2’s with taxes withheld.  When given the option to be W-2’d with taxes withheld I normally recommend this choice.

While there are advantages and disadvantages to doing business as a company it is important to remind those who are using such a tax structure that they  have a clear understanding of why you are doing business as a company and it is important to understand the relationship that you have with that entity.  All too often I will speak with a new client  doing business as an S Corporation/LLC only to realize that they really do not understand why they have the company or they do not understand the fundamental tax aspects of that entity.

As stated above I am seeing less of a need for crewmembers to incorporate however there are still some  valid reasons why a yacht crew member may  choose to do business through a business entity.  Some crew members are working on foreign flagged vessels and are worried about the undocumented nature of their income, other crew members work for owners that mandate they form a company, and some crew members work freelance jobs making the flexibility of a company advantageous.  Whatever the reason the taxpayer has in forming the company it is important that the crew member understands the basic reasoning behind these decisions, the advantages and disadvantages of doing business as a company, and more importantly the taxpayer needs to understand how that entity is taxed and what their responsibilities are in maintaining that entity.

It is also important that the taxpayer have a good working relationship with their accountant, the accountant should always be expected to answer reasonable questions and not make the taxpayer feel like they are a bother. When the tax returns are completed the taxpayer should take the time to carefully review and ask questions the questions necessary for them to comfortably sign off on those tax returns.  It is important to remember that while the accountant may prepare the tax returns the taxpayer is ultimately responsible for the completeness and accuracy of those returns.

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Foreign Bank Account Compliance

By: Tom Andrews, CPA

For those yacht crewmembers who are still not familiar with FBAR requirements (Foreign Bank Account Reporting) the Treasury department requires that a United States Citizen or Tax Resident is required to file FinCEN Form 114 if:

  1. The United States person had a financial interest in or signature authority over at least one financial account located outside the United States; and
  2. The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.

In addition to filing the Form 114 the tax payer might be required to complete Part III of Schedule B on their personal tax return and Form 8938 “Statement of Special Foreign Financial Assets” if applicable. The due date for filing Form 114 is now April 15th plus a six month extension if accepted by the IRS. The Form 114 is filed electronically at bsaefiling.fincen.treas.gov Read More »

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More Than a Captain

by: Tom Andrews, CPA

This goes without saying but the term Yacht Captain is probably the most understated job title in the luxury yacht industry. The profession is so much more involved than taking the vessel from one destination to another.  Many captains are hired only to find themselves a part time captain and a full time yacht manager.  Some captains embrace the role of manager even going so far as to “baby sit” unused vessels.  While the added responsibility can be negotiated as part of the compensation package there is also a risk that certain liabilities may be thrust onto the Captain.

When Captains find themselves filling the role as a manager they are normally on small or medium sized programs. More often than not the larger programs are controlled by a management company, these large management companies tend to run every aspect of the vessel including but not limited to MLC compliance, payroll, crew placement, accounting, itinerary, etc. After the large and medium management companies you will find “small managers”, these are typically one or two man management companies being run by a former or current captain.  These “mini” or “small” managers provide services to small vessels that may have a few or no crew at all.  In some cases the owner only uses the vessel part time so they need a captain to check up on the boat while the vessel is not in use.  Read More »

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2017 Foreign Earned Income Exclusion Update

by: Tom Andrews, CPA

Every year I meet with clients who say to me “I heard if I am living outside the United States for 183 days I am not required to pay taxes…” I believe this is one of the most common tax related myths in the yachting industry.  This myth is so often repeated because many nonresident crewmembers are not required to pay taxes when they are living outside of their home country for more than 183 days (although this is changing).  Since many crewmembers compare notes many are under the impression that tax law is universal and mistakenly feel they might also be exempt from paying tax.. it also doesn’t help that many yacht payroll companies are not properly withholding tax from the American crewmember salary. Read More »

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Dual Citizenship

By Tom Andrews, CPA

As you may or may not be aware all US citizens are subject to US income tax regardless of whether they reside in the United States or not. To make matters more complicated some yacht crewmembers have dual US citizenship with another country.  While these circumstances are rare we do encounter these situations from time to time.  Read More »

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Starting 2017 on the RIght Foot

By Tom Andrews, CPA

As you begin the 2017 tax year now is the time to implement habits and strategies that will make filing easier for you at the end of the year. Many of the taxpayers I speak with take a reactive stance to tax planning that is sometimes detrimental to their long term plan, now is the time to be proactive.   Working in the yachting industry will present you with a number of problems that many land based tax payers will never contend with.  Some of those issues include but are not limited to the following: Read More »

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Crewmember Verification Foreign Flag

By: Tom Andrews, CPA

As a crewmember on a foreign flagged vessel you are probably being paid in one of three ways:

  1. You are issued a W-2 with taxes withheld.
  2. You receive a 1099 at the end of the year.
  3. The employer is simply depositing funds to your bank account without provided a W-2 or 1099.

Read More »

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Trump Tax Plan

By: Tom Andrews, CPA

Now that a republican president has been elected to office along with a majority republican congress, tax reform is almost certain.   Since the election I have had a handful of clients contact me to inquire how tax reform might affect them.  At this time I do not have an answer, while the President-elect’s tax proposal may seem aggressive it seems many of his proposals have been extreme.  By his own admission his proposals are a starting point with an anticipated negotiable outcome.  Before discussing how these proposals might affect yacht crew, let’s review the broad strokes of the President-elects  proposed plan:

  1. Condense the tax code to three brackets 12%, 25%, and 33%.
  2. Eliminate the 3.8% net investment tax.
  3. Eliminate the carried interest deduction.
  4. Eliminate the $4,000 personal exemption.
  5. Increase the standard deduction from $6,300 to $15,000 for single individuals and $12,600 to $30,000 for married individuals.

Read More »

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IRS Phone Scam Leaves Yacht Crew Vulnerable

By: Tom Andrews, CPA The Internal Revenue Service has received almost 90,000 complaints from tax payers who have received unsolicited calls from individuals demanding payment while fraudulently claiming to be from the IRS.  This can be especially troublesome to yacht crewmembers most of whom  travel frequently. Many crewmembers are away from home for extended periods of time.  This sometimes leaves doubt as to whether or not they may have lapsed in filing a tax return or making an estimated tax payment.  I have had several clients and their families receive these calls and luckily none of them have handed over confidential information. During a recent encounter we had a client living in England receive a phone call from a gentleman claiming to be from the IRS, since she has been out of the United States for an extended period of time she was led to believe that she had missed some important tax filing deadlines. Upon calling our office we were able to reassure her that the phone call she received was a phone scam, later confirmed upon calling the IRS. IRS commissioner John Koskinen has stated “Taxpayers should remember their first contact with the IRS will not be a call from out of the blue, but through official correspondence sent through the mail. A big red flag for these scams are angry, threatening calls from people who say they are from the IRS and urging immediate tax payment.  This is not how we operate. People should hang up immediately and contact the IRS.” Additionally, it is important for taxpayers to know that the IRS: Read More »

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