If you have a business, you probably already know that your company can own any number of assets. Buildings, land, vehicles, machinery, office equipment, inventory, and more are well within the realm of business ownership, depending on the nature of your company.
If you’ve been thinking about buying a boat, you might also be wondering whether or not your business can purchase and own that watercraft. But unless the nature of your company directly involves water or boats (as with outfitters, guides, and the like), there’s some gray area to consider.
Here’s a look at what to keep in mind if you want to buy a boat through your business, and whether this type of expense could ever be allowed.
Can I Buy a Boat Through My Business?
The short answer is that yes, you can buy a boat through your business using company funds. Whether or not your specific business is allowed to do so, though, depends on a number of factors.
The nature of your business matters
If you have a business that relates to boats or water in some form or fashion, buying a boat through the company might not be such a stretch. For example, if you own a scuba diving shop and want to start taking divers out on oil rig expeditions, buying a boat makes sense. If you’re an outfitter or fishing guide, a boat may be integral to your day-to-day operations.
For most businesses, though, validating a boat purchase could be more of a stretch. If you own a bakery or music shop, purchasing a boat might be a hard sell, at least as far as the IRS is concerned.
You’ll need to find some way to show that your unrelated business has a valid reason for buying and using a boat, if you want it to count as an allowed business expense.
How you use the boat matters
This is where the intended purpose of the boat comes into play, and is also where many businesses are able to demonstrate a valid purpose for the boat.
If you own a law firm or marketing agency, a boat probably isn’t an important part of your everyday operations. If you were to use that boat to entertain potential clients, entice new hires, or host team-building excursions, you could very well have a valid argument for such a purchase.
Each company’s experience will vary, but you could potentially use the boat in ways that allow you to deduct expenses for:
- The purchase price of the boat
- Taxes, storage fees, maintenance, and repairs
- Operating expenses (like gas and oil)
- Entertainment costs (such as food and beverage services, catering expenses, decorations, and more)
- Expenses related to activities (scuba diving equipment and air tanks for a team-building excursion, or bait and tackle for a new client fishing trip, for example)
It’s important to note that none of these expenses are guaranteed deductions on their own. What you can legally deduct will depend on your business, the nature of the boat’s use, and even how you file your taxes.
Honesty is key (especially with the IRS)
When it comes to Uncle Sam, honesty really is the best policy.
Put simply: you can’t buy a boat through your business, take it out once or twice a year for company excursions, and use it the rest of the year as your family’s personal boat… at least, not if you want to be able to write off some or all of the related expenses.
Eligible expenses related to dedicated business activity could still count as deductions. But if you’re also using the boat for personal use, it’s wise to be as honest as possible with the IRS about when the boat is being used and how. You could find yourself facing hefty penalties otherwise.
Can a Business Finance a Boat with a Boat Loan?
A business entity can purchase a boat outright with funds from the company, as long as the boat has an eligible purpose. But if your business can’t afford to pay cash for a boat, is your company able to finance a boat loan?
The answer to that rests on a few factors:
- Not all lenders will allow for business loans. You’ll want to find a boat lender that issues loans for business use and accepts commercial borrowers.
- The history of your business will come into play when qualifying for a commercial boat loan. If your business is newer or has a poor credit history, you may not get approved.
- If the nature of your business is not water-related, you may not be able to get approved for a commercial boat loan. Many commercial lenders will only approve boat loans for businesses that need a boat for regular operations; if your boat is simply a want or a fun company purchase, getting approved could be more difficult.
If you do get approved to take out a commercial boat loan, you will likely find that the repayment terms are less flexible than with personal boat loans. For example, you may only be able to choose a maximum repayment period of seven to 10 years, whereas a personal boat lender (like Trident Funding) could give you up to 20 years to pay off the boat.
This, combined with your offered interest rate, could result in a higher monthly loan payment.
If I Buy a Boat Through My Business, Is It Tax Deductible?
When business owners ask if they can buy a boat through their company, what they’re usually wondering is whether or not they can write off the expense. But deducting the cost of a boat at tax time can really depend on your company, the boat itself, and how you use it.
Your boat purchase might not be tax-deductible…
If you primarily use the boat for personal excursions, or have trouble demonstrating that the purchase falls under a reasonable “business expenses” umbrella, it might not be tax deductible in the eyes of the IRS. These costs — which might not be valid deductions in the end — could include the purchase price of the boat, sales taxes, registration and licensing fees, delivery fees, and more.
The more the boat is used for company-specific purposes, or the closer a boat purchase ties into the nature of the business, the more likely the expenses are to be tax-deductible.
…but certain expenses could be
Of course, even if the purchase of a boat isn’t considered a tax-deductible expense, it doesn’t mean that other related expenses can’t be deducted at tax time.
Depending on your situation, you may be able to deduct costs related to:
- Depreciation of the boat
- Annual finance charges
- Mooring fees
- Storage, winterization, transportation
- Operating costs
- Maintenance and repairs
- Annual fees, like insurance, registration, and licenses
If you host company parties on the boat, you’re more likely to get those related expenses deducted, too. Think catering services, food and beverage expenses, decor, gas, and cleaning fees. Send the team out for a weekend fishing excursion, and you might be able to write off the cost of food, beverages, gas, bait, fishing gear, and more.
When In Doubt, Consult With an Expert
Business taxes are complicated enough. Add in a questionable purchase, like a boat, that doesn’t align with your company’s normal operations? You’ve just created an even more complex tax situation.
In many cases, it makes sense to consult with a tax professional to determine whether or not you can buy a boat through your business, and what (if any) expenses you’ll be able to write off at the end of the year. This expert can take certain variables into account — like your business’s structure and nature — when determining what the IRS will and won’t allow.
They can also help you find ways to optimize your expenses and understand how to get the most out of your allowed deductions, before you ever apply for a boat loan.
The Bottom Line: Can I Buy a Boat Through My Business?
Buying a boat with your business can be an exciting idea. In many cases, you can even write off a number of expenses related to that purchase, especially if you use the boat for eligible company activities.
Whether or not your boat-related expenses are tax-deductible depends on the nature of your business, the type of boat use, and what sort of expenses are incurred. Consider consulting with a tax professional to see exactly what options are available to you and what the IRS will allow you to deduct.