By: Tom Andrews, CPA
Many yacht crew members will use their personal vehicle for vessel / yacht business. In many cases they are not reimbursed by the vessel and simply use their vehicle without regard for the potential tax benefits of an auto deduction. If a vehicle is used exclusively for your business, then generally you can deduct the entire expenses for operation of the car. However, the standards of “exclusive use” are hard to meet. It’s more likely that your vehicle is used for both personal and business and you will, therefore, have to determine what operation expenses are considered deductible.
Generally, travel between two business destinations is considered a deductible operation of the vehicle. This can mean travel from your vessel to the post office to deliver mail or the supply store to get provisions. This also includes travel from one vessel location to another’s and back to your vessel or place of business. Travel to work locations that are different from that of your regular place of business also count. However, travel from your home to your regular place of business on a daily basis is NOT deductible, even if you have your business advertised on the side of your car.
Many clients inquire as to whether it is more cost efficient to write off the actual cost of a vehicle and fuel or if is better to write off the IRS approved standard mileage rate (56.5 cents per mile for business miles driven in 2013). In my experience the IRS standard mileage rate will provide a greater deduction than keeping track of the actual costs. Even if the IRS mileage rate provides a lower deduction, the time spent keeping track of receipts and actual costs may outweigh the benefit of that actual cost savings. That is not to say there is no administrative work with tracking your mileage. The IRS will expect to see a mileage log with a beginning odometer reading and an ending odometer reading, they will also expect a description for each business destination. In some cases an IRS auditor may also ask for some type of third party documentation that supports the odometer reading…. this may include a oil change receipt that has your odometer stamped at a certain point in time.
Another thing crewmembers should be aware of is that some yacht owners and captains reimburse the crewmember for the business usage of their vehicle, in those cases the crewmember must report that reimbursement as income on their tax return and subsequently deduct the mileage or cost on their individual tax return. Typically employers will include this income on a client W-2 however this is typically not seen in the yachting industry because many foreign flagged vessels do not issue or withhold taxes from the resident or nonresident crewmembers.