C-Dory as a "home office"?

[timflan]

I'm trying to build some online income streams (hopefully...fingers crossed), and I need a place to work. I work from home sometimes, but if the children are around, it can be very difficult to concentrate. Even if they're not here, it can be tough to mentally "remove" myself from the home and the associated projects and chores. Some of my best work sessions have taken place in my little truck, parked at the Ballard locks or along the ship canal. I really like working near the water. It seems to allow me to think and work creatively, and that's just what I need.

So, this is my question: Has anybody used their C-Dory as an "office"? Here's what I imagine: It's moored in the water. I drive (or ride my bike) to the marina, carry my laptop to the boat, fire up the Wallas if it's cold, plug in the laptop to appropriate power, and get myself situated.

My concerns:

(1) I need an ergonomic workspace. If my shoulders are hunched up or my neck is crooked, it's not going to work out in the long run. Has anybody else tried to create an ergonomic computer "workstation" on their C-Dory?

(2) If I'm using my C-Dory for an office, it seems legitimate for me to write off a portion of C-Dory expenses under my business. How much? If I keep good logs, including all time spent on the boat (not just voyages), would it be legitimate to count up the hours aboard and divide the business hours by the total to obtain a percentage? If "office hours" are, in general, not "operating hours", I could use this percentage to calculate the portion of non-operational expenses attributable to the business. Moorage, insurance, and electricity, for instance, but not fuel or engine maintenance. Has anybody done something like this?

If this seems too tricky, what about just charging rent to myself? I (Tim) own the boat, but my business (sole proprietorship, not LLC or corp) rents it out as office space. I could charge the equivalent of incredibly cheap office rent and cover essentially all the same expenses I mentioned above: moorage, insurance, electricity, etc.

Again, has anybody tried something like this?

And before anyone says so, YES I understand that I'll need to talk to an accountant, and maybe even a lawyer, about this. YES, I understand that no anecdotes or stories any of you may share here constitute legal, professional, or accounting advice.

Thanks!

[Alasgun]

No lawyer needed, we deduct ours as a 2nd home much as you would a motor home. The criteria was simple, can you cook on it, can you sleep in it, does it have a bathroom? This will get you an interest deduction. If you step it up to include some service that you provide the public then the sky is the limit. Maybe you could incorporate a still and then you might not be so concerned about ergonomics! Heck if you got a liquor license you would have the only 2 man bar in the world which would get you some recognition.
I'm sure non of this is helpful but it sure is fun watering our imaginations from time to time, Mike on Huda Thunkit

[mikeporterinmd]

If I were going to work all day using a laptop, I would want the setup I have
here at work. A decent chair, arms at the proper height, screen proper height,
etc. 17" screen.

My first thought is to build something to hold the laptop and base unit over the
forward seat, port side. See if an office chair fits where the table
normally goes. Be hard to stretch your legs, though.

Or: remove the base from an office chair and make a mount for it to
fit either dinette seat? Not sure how the height is. Anyway, depends
on your size, not mine.

When it's time go boating, store all this stuff in a dockbox next to your slip.

Writing the space off: a lot will depend if you can show income and profit
from the use of the space. Otherwise, perhaps ruled as a hobby or worse.

Anyhow...something like that I'm sure it's possible.

Sounds like it might be fun.

Mike

[Fairbro]

About 4 years ago when I bought Minnie I called my bank and asked for an interest paid statement on my boat loan so I could deduct it for tax purposes. I heard the old "second home deduction" story too. I got the old "you should have been here last year" story instead. They told me you couldn't do that anymore... I belived them...were they wrong? Was that a State or Federal law? Could Alaska be different?

[tom&shan]

If my wife finds out how much I paid for my C-Dory I think it will be my first home.

Tom

[lloyds]

boat as a second home always worked for me. Unless something has changed recently.

[mrw90]

Fairbro - They were wrong. The interest paid on boats that meet specific requirements can be written off as the boat qualifies as a second home.

[drjohn71a]

Tim - to the best of my knowledge there is no problem with deducting the interest from a motorhome, camper, or boat which is equipped for living. e.g., it must have a toilet, food prep, sink, bed - just minimal requirements.

Trying to deduct a portion any abode for use as a home office does trip the 'audit flags' at the IRS, regardless of how deserving, or well-intentioned the claim.

Also, if you take a business deduction, instead of the "2nd home interest" deduction, you will have to recoup (pay back) the amount you deducted or depreciated under the home office claim should you change your use declaration or sell the property depreciated/deducted/

Of course, an accountant's advice is warranted before trying this, but what I am saying is that you'd better have a going business and all your ducks in order, as well as a detailed explanaion of the problems of selling later, before attempting such. Also, I think you'd have to show a profit in 3 years, or have to pay back the deductions.

I have a home office and do not even try to deduct it due to my accounting firm's advice about all the potential pitfalls.

Good luck on your business,

John

[Fairbro]

OK! A quick call to my tax guy reveals that I can deduct C-Dory interest after all. My loan guy was an idiot and I was just as bad for not questioning his answer. The bad news is I can only amend the last 2.5 years. Oh well, even so I will have benefited much more than the expense of belonging to this fine forum. It really pays in many ways! Thanks guys!

[patrick and linda]

hi tim,
first and foremost, i'm i big believer in the s-corp or llc status. it sounds like the s-corp would be ideally suited for your business. irs flags, as mentioned in an earlier post, go up, especially on sole proprietor type businesses. best scenario would be placing the boat in an llc and leasing the boat to the s-corp. all business rents are deductible, you might even make the lease a triple net lease, then the insurance, dockage, and maintainance, could possibly qualify as a deduction.
if you choose the latter example, then the s-corp would list the llc and you as additional insureds on the insurance policy.
i enjoy seeing the creativity generated by this site.
best regards and good luck,
pat

[drjohn71a]

hey again, Tim...

As a person who has started several companies, LLCs, S Corps, and sole proprietorships, I feel I should warn you about putting things you hold close inside the corporate veil... You could easily lose them!

If you sell or transfer your entity, or retire, you would have to buy any assets you want back out of that entity, INCLUDING any tax deductions or Federal incentives used in their initial inculcation into the entity.

I have lost two huge sets of exotic shop equipment and lab equipment since the outrageous cost of getting it back out of the corporation was so high. Your preivous deductions would be rolled back and you'd have to repay the previous tax savings, PLUS the current market value of whatever asset you take back.

As such, I'd rather take the risk of a Sole Proprietorship in items which I would dearly not want to lose. I also have a Corporation and an LLC, but I am careful to not put anything I love in those entities.

John

[timflan]

See? I knew somebody would have something to say!

Thanks for all the responses so far. I hadn't thought of having the vessel owned by any entity other than myself. Since I won't be using it for business-related transportation, it's more like a home office than it is like a personally owned automobile used for business. So it might make sense for me to establish the boat as a second home, tax-wise, and then deduct expenses for its business use just as one would for a regular home office.

I've considered setting the business up as an LLC or S-corp, and only dismissed these options because the whole thing is so simple right now. If that changes, my decision might change, though!

I am confident that profitability won't be too difficult to achieve. The business is generating income now due to a part-time consulting gig I've got, but my long-term investment in "passive" income streams requires a good deal of consistent, focussed, quality creative time, and I need a place to do that that isn't at home! A regular office, a shack in the woods with a little wood stove (and electricity and internet!), a boat on the water...anything along those lines would work. I know how I work best, and the fact is I'll probably use the C-Dory this way whether or not I can write off any portion of boat expenses at all. It just seems to me that if I am using it this way, then the business should pay rent for the business use of the space, or should cover some portion of the expenses.

Actually, the top priority is making the space ergonomic enough to sustain three or more four-hour stretches a week. Ah, well..we shall see how it all turns out. I'll talk with my accountant about it, once it becomes a reality. Right now, I'm still waiting for the right boat to come on the market!

[ccflyer]

Here's my $.02 worth.

I believe to qualify as a home office the allocated space in the "home" has to be used EXCLUSIVELY for business. You can't use the second bedroom as an office during the day and the kids sleep in it at night.

Any competent tax advisor will tell you the home office deduction kicks off the IRS red flags - and - when the IRS learns this office is part of your 22' boat - well you may just make it to the IRS annals of most outrageous deductions.

I think I'd find other business deductions to take against income rather than a home office.

Regarding the form of the business, I agree the sub S or LLC works best but you should be at a point where you know there will be some income since you will spend money on annual filing fees, tax prep, stationary, insurance, etc. I know folks who make a grand or two each month on ebay who looked at the cost of formalizing their "businesses" but deferred after adding up the expenses.

As all good CPA's will tell you, there's a line between tax avoidance and tax evasion. If the IRS thinks you've crossed that line be prepared to have several years audited. Not a pretty picture.

Phil

[thataway]

I would pay a lot of attention to what dr John and CCflyer posted. Go ahead and do the interest deduction and be happy. You are asking for trouble if you are audited or want to sell the boat and certainly the latter will happen at some time.

I do have a home office--and it is rented to my corporation. But it is a real office, complete with desks, book cases for the books used by the corporation, computers, fax and phones used only by the corporation. I also realize when I sell the house, I will have to take into acount the rent I have recieved--Plus that part of the rent over the expenses is income, which I pay taxes on.

I have friends who have marine businesses--such as sailmakers, marine equiptment makers who write off their boats or where the boat is owned by the business, but the occasional use of a C Dory as place to work would not fit into those categories. The old saying about business and pleasure!

[drjohn71a]

Another thought, Tim....

My middle son is trying out some free lance writing and consulting. He bought a couple of books at Borders that have helped him sort all this out. One was the "_____ing for Idiot's" type.

Corporate structures are a bit difficult to change after the fact, and I'm just advising to go slow on optional constrictions until you get your 'sea legs' on your new ventures.

Also, you might try keeping a log to justify any deductions. If you can show you are honestly trying to make a buck with the deducted expenses, that would help alot. I think you're on the right track, thinking of deducting all the supplies, small tools, electronics

Good luck!
John