by: Tom Andrews, CPA
Many yacht crew members have chosen to do business by forming a company (for the purposes of this column I am referring to an S Corporation or LLC), while there are advantages and disadvantages to doing business as a company the focus of this column is to remind those who are using such a tax structure that it is important to have a clear understanding of why you are doing business as a corporation and it is important to understand the relationship that you have with that entity. All too often I will speak with a new client that is 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.
There are many valid reasons why yacht crew members choose to do business as corporations, 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.
Again the focus of this column is to remind crewmembers to educate themselves, I have spoken with many crew members whose time has been so absorbed on a busy program that they disengage from their own personal responsibilities, unfortunately taxes is one of those responsibilities that needs to be tended too as well. While it is not necessary for a client to become a tax expert a taxpayer is doing themselves a disservice by not taking the time to understand the broad strokes of their tax situation, the more a client engages themselves the more their accountant is in a position to assist their tax needs.