LLC when homebuilding boat?

Are there any advantages to creating an LLC (or some other legal entity) when building a boat? For example, purpose of the LLC would be to build one boat for (eventual) sale. My personal money would be "invested" into the LLC, which would then purchase boat-building materials, etc...of course the LLC would have zero income and would run at a loss for the entire building phase - maybe some tax advantages there for me? After completion, boat is owned by the LLC while I sail around on it...eventually boat is sold and the LLC can close up shop. At least in my infantile legal mind that is the idea that popped up.

This may be a fraudulent idea, and yes I would consult a lawyer before taking any permanent steps, but I would still like to hear any thoughts from the forum. A lot of cash outlay goes into a large building project (40'+ catamaran in my current plans), seems a shame to not be able to take advantage of that somehow. Maybe the LLC could at least be used to get preferential pricing from suppliers?

 

The LLC will protect you from a possible law suit. The can only sue for what the LLC owns. You would be an employee of the LLC, or you can have a pass-through corporation, which still gives you protection.

 

How about write offs? Travel, tools etc?

 

There are two different questions here. The first I'd the legal advantages of using an LLC, and yes you should create one, and pass all purchases and hires through it. This gives you an amount of legal protection from liability and lawsuits.

The second is an accounting question, and needs to be addressed by an accountant. I have one I work with closely on projects like this (more often planes for private use than boat building though).

You really need to consult a team though to do this correctly, neither specialty will have all the answers.

I am a corperate attorney for a titanium company, my partner in these is a corperate tax expert.

 

this leaves a question. Is the LLC a boat manufacturer or not? if you are building the boat for the purposes of sale, then you have register with the US Coast Guard and get a manufacturers ID code. If you are building the boat for your own use then no you don't. This costs nothing to get a MIC. But if you are building it for the purpose of sale, Washington State may require a business license and may (may he.., they will) tax you on the value of the boat.

I would be willing to bet if you LLC then the state will consider you a business and building for the purpose of sale.

Frankly I can't see any tax advantages. I have built boats in Washington and did not have to pay sales tax on materials (a tax advantage) but had to pay excise tax on the value of the boats. I did not becomes an LLC. I couldn't see any advantage to it.

Maybe you should put this question to the IRS.

 

Creating an LLC you would only do if you have substatial personal assets you want to protect from anything you would be doing as the LLC. otherwise it is just a lot paperwork and expence, and requires you to disclose to various government agencies your private business.

Not likely building a boat for yourself will create a liability, even if you eventfully sell it. I would not bother, a one off sale would be viewed as a "casual" sale, as if you sold a used car. If you sell more than 3-4 cars a year than you need a dealer's license, pay taxes and fees, etc. but selling one or two you do not not.

Keep your lift simple, avoid any unnecessary paperwork and government involvement if you can.

 

Agreed, there's not much advantage unless you have significant holdings that might be in liability limbo. If this is the case, you probably should already have an S Corp tax profile. Building a one off isn't sufficient to warrant this. LLC's (really a partnership) doesn't offer much help in this regard. The real question is one of your tax structure. Simply put, sole proprietors, S-corporations, and partnerships get taxed at the shareholder level. Corporations are taxed at the corporate level. Unless you have investors, your protection needs will be at the partnership level (typically one shareholder).

 

I built in Florida and the receipts for materials were provided. The main reason the clerk looked at the receipts was to determine I paid the taxes. Therefore she charged none, having seen they had already been paid.

 

Creating an LLC will create some liability protection - you will have to assess if you have sufficient risk that needs to be mitigated. Most people don't, but you could be the exception.

It would probably not create a tax benefit for you. Without looking up the specifics (I'm not a tax expert, but I play one on TV), I believe you will find that you can only write off expenses to the extent they offset income from the LLC (as you said, no income to write off). You probably can't offset losses of the LLC against other income unless you can demonstrate to the IRS that this is a legitimate business that is established to make a profit. If your stated purpose is to build one boat, an IRS auditor won't likely be convinced.

As an additional legal matter, if your LLC is created to "build and sell" a boat, you have different legal issues (re: liability) to discuss with your lawyer than if your LLC is created to "build and operate" a boat and the subsequent authority to "dispose" of the vessel.

 

Thanks for all of the responses guys. Since this would be a homebuilt boat (just me, laboring away in the backyard or shop), liability issues are not really a factor here. I was more interested in any possible tax benefits, but it's starting to sound like a lot of paperwork for increased (IRS audit) risk.

 

Receipts will be required. Save them.

 

Thanks - I only recently read about that requirement in other threads, but didn't know about it when building my current boat (22' trimaran) and haven't saved a single $@#$* receipt. As you may know, Washington State has a hefty sales tax (~9-9.5% depending on specific location)(but no income tax ). So I may get screwed when it comes time to register the trimaran. Painful lesson but life goes on.

 

98014,

Funny story that you may appreciate being in the position you are in.

I was in the same building one day as the Provincial (State to you my southern friend) Registry office and thought I would simply inquire about registering my home built houseboat.

A friendly young guy approached the desk and patiently answered all my rookie questions. While I was figuring it out with counter questions he pulled out a form and started filling it in. I explained to him that I was just passing by and didn't have any receipts or paper work with me and was only enquiring. He said no problem, I can tell you're being honest with me, sign here.

Much to my amazment, there was no further follow-up and all my documents arrived in the mail 10 days later. I still have all those unviewed receipts just in case.

Good luck!

 

Did that happen this century?

 

Not in Washington State! I have a 12 foot rowboat I built, that I occasionally power with a 2hp OB. Previously I used it only on lakes under state jurisdiction. It didn't have to be registered. But now I use it mainly on American lake. Since American lake is half owned by the US Army and half in Pierce county it is considered joint Federal/State Jurisdiction, meaning anything with an engine has to be registered. Fortunately when I built it in 2008 I kept all the receipts. When I registered it this year they wanted to see all the receipts and very carefully added them up. They even asked why I hadn't paid sales tax on some of the materials (I am a registered builder with the USCG and being a business can buy stuff free of state sales tax) And they added the amount of unpaid sales tax to the tally, all this to determine it's value and how much excise tax I owed on a boat that cost about $600.00 to build. I think the excise tax was $27.00. I don't think they appreciated my comment that it probably cost more than that to go through the exercise of adding all the stuff up, making copies, etc etc.

Being a former government employee I have seen this before. Charging some piddly fee for something, that is supposed to cover the cost of doing it, when the real cost is two to three times what you are collecting (and you wonder why we have a deficit?)