FYI: May 2004
|FYI — May 2004|
|By Brad Dunn|
in the Tax
By the Ides of April, more taxpayers than ever (almost two million of them) had to cough up the alternative minimum tax (AMT), and many learned the hard way that when you pay the AMT, you don’t get to write off your berth-, galley-, and MSD-equipped boat as a second home.
Established in 1970, the AMT was designed to nullify loopholes that allowed the nation’s fabulously wealthy to dodge taxes. It basically worked like this: If your annual income was higher than a determined level and included substantial AMT-taxable items, you simply paid the AMT, no questions asked. At the time, only about 19,000 people were so well-heeled.
Unfortunately, the AMT cutoff was never adjusted for inflation, which means every year more and more people are trapped into paying it. In fact, up to 30 million Americans are expected to pay the AMT in 2010.
“The insidious thing about this tax is that it originally targeted the super-rich,” says William Horst, a CPA and partner of the William Vaughan Company. in Maumee, Ohio. “But now it’s really just hurting regular boat owners across the board.”
In addition, the tax code says you must figure out what you would owe under both the AMT and regular tax system—and then pay the higher of the two, according to Jennifer Furey, a CPA with the William Vaughan Company.
Ironically, the real problems occur when Congress cuts income taxes, because those cuts do not affect the AMT rates. After the wave of recent tax cuts, many people found they owed more under the AMT guidelines and therefore had to pay it—thus losing their boat deduction.
Clever accounting can help, but for many boaters there is no quick fix. “If you’re looking for a silver bullet, there isn’t one,” Horst says. “This problem will go away only when Congress changes the AMT.”
But boat owners need not despair: There’s hope yet for next year’s tax season, especially if you own an S-corporation, rental property, or other types of income-generating businesses. Horst advises boaters to ask their tax planners if any of these entities can effectively—and legally—still take advantage of tax write-offs on the interest paid.
Because every boat owner has a unique set of accounting options, there are numerous ways to weather the tax storm. Next year, just make sure your tax advisor knows how to plot the course that’s appropriate for you and your needs.
The previous record was 80 hours.
This article originally appeared in the April 2004 issue of Power & Motoryacht magazine.