AvMar Yacht Payroll & Accounting Blog

2017 Year-End Tax Planning

By Tom Andrews, CPA

As the end of 2017 approaches it is time to step back and reflect on your income and expenses for the year. All too often yacht crewmembers are busy with family obligations,  holiday charters, and the general chaotic schedule of running a program.   Unlike traditional forms of employment the tax rates for yacht crewmembers is dependent on a number of factors. For those of you who like to pay your taxes at the end of the year, now is the time to get your estimates in order.  I would recommend you start by reviewing your prior year tax return and ask yourself the following questions:

  1. Have I earned more income this year than the prior year?
  2. Have I made any estimated tax payments this year?
  3. Am I expecting any yearend bonuses?
  4. Have I sold stock or property this year that may impact my income?
  5. Will I be receiving a 1099 for the income earned during the year?

Read More »

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Health Insurance Enforcement Penalty

By Tom Andrews, CPA

The Patient Protection and affordable Care act commonly referred to as the Affordable Care Act or “Obama Care” was signed into law in 2010. There has been confusion among many yacht crewmembers as to how this law will affect them and if they are required to comply.  In most cases American crewmembers working on US flagged vessels and foreign flagged vessels will be required to comply, there may be some limited exceptions however this column is intended to address the broad compliance issues faced by individuals working in the yachting industry.

The most controversial aspect of the Affordable Care Act is the individual mandate, this provision of the legislation requires most American’s to be enrolled in an Affordable Care Act compliant health care insurance policy. The 2017 penalty for not enrolling in an ACA compliant policy is that the noncompliant individual will be 2.5% of household income.  To make matters more complicated, there was confusion as to the comments made by President Trump regarding his preference that the IRS not enforce the ACA penalty for not having insurance.  The IRS has recently stated that it is still their position to enforce the penalty and not accept tax returns that do not include information as to whether or not the tax payer has insurance or not. Read More »

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State Income Tax Considerations

by Tom Andrews, CPA

More often than not crewmembers fail to take into account the prospect of state income tax liabilities.   While many US flagged vessels withhold federal payroll and income taxes and only a fraction of foreign flagged vessels withhold federal income taxes these vessels rarely withhold state income taxes.  There are currently seven states that do not have a state income tax, those are Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming and there are two states that only have an income tax on dividends and interest, those are Tennessee and New Hampshire.  If you are not a resident of one of those states you will want to seek advice or contemplate your situation before the end of the year.  Failure to make timely estimated tax payments may result in penalties if left until the time you file your tax return. Read More »

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Delinquent Tax and Passport Restrictions

by Tom Andrews,CPA

Several years ago I wrote a column that discussed H.R. 22 “Fixing America’s Transportation Act”, upon passage congress included a provision that allows the State Department to revoke, deny, or limit passports for anyone the IRS certifies as having a seriously delinquent tax debt in an amount in excess of $50,000.  The new compliance enforcement is supposed to roll out sometime in 2017 although the specific timeline has not been disclosed. The law defines seriously delinquent tax debt as a legally enforceable federal tax liability of more than $50,000  (unpaid taxes, penalties, and interest combined) that has been assessed and for which:

  1. A lien has been filed and all administrative remedies for lien relief have lapsed.
  2. A levy has been issued.

Read More »

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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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