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Taxes, Yachts & Wealth Preservation
Yachts and the yachting lifestyle can be easily affordable if you just do one thing
For the most recent years available, the IRS reports that for those earning over $200,000, less than ½ of 1% take full advantage of all the available tax code provisions.
As a yacht owner, or if you are just considering a yacht investment, you are probably all too well aware that your success is under constant attack and your wealth increasingly threatened.
Accumulating wealth can be difficult, but preserving and protecting wealth requires constant vigilance.
As if it's not bad enough, according to government statistics, over 99.5% of high net worth individuals are either 1) unaware of what is likely the greatest threat to their long term wealth maximization, or 2) helpless as what to do about it.
“That’s a real shame.
Congress enacts a tax benefit
with the intention of every
eligible person taking
advantage of that benefit.
I’m very concerned that tens
of thousands of taxpayers
aren’t taking advantage
of the available tax provisions.
Even worse, a lot of paid tax preparers were in the dark. There’s no point in paying somebody to do your taxes if those folks don’t do you any good.”
Charles Grassley U. S Senator
STOP OVER PAYING YOUR TAXES
Yet, if you could just minimize this singular greatest threat to wealth accumulation and preservation, you could easily enjoy the yachting lifestyle with little if any negative effect upon your long term net worth.
Over the years we have found two constants:
The higher the income, the more one tends to consistently over pay their taxes, and
We can usually find items that have been consistently ignored or overlooked by most CPAs and their other advisors for years that can reduce the annual taxes of high income earners between 30 - 50%.
Understandably, at first impression, many may be surprised by those figures assuming that more affluent tax payers would have better outcomes since they can easily afford and they usually paid for the "best" tax advice and counsel. And in some respects that is true.
But nobody knows everything,. As the tax code becomes increasingly more complicated, enforcement seems more arbitrary and interpretation less predictable. Could your current advisors miss something? Could another set of eyes help?
Others will not be surprised to learn they have significantly over paid their taxes since they have "sort of been wondering about their current tax advisors" for some time feeling they may have "outgrown" them but chose to remain out of a sense of loyalty.
Unfortunately, too many just assume there is not that much difference between qualified tax professionals, or that if they pay a high price for advice to a recognized name that the tax advice must be "good". Does "Son of Boss" ring any bells?
Many affluent tax payers simply don't know how to check the quality of their current tax advice and become comfortably complacent. That can be a costly mistake. As documented below, tax advice from CPAs can vary as much as 100% or more - even for relatively unsophisticated returns.
INVEST YOUR TAX SAVINGS WISELY
Recent research on the subject reveals that one's tax rate can have up to 10 times greater influence over long term wealth accumulation then one's actual asset allocation or investment portfolio. Up to 10 times more impact on one's wealth, and it goes largely ignored - or accepted - by the most affluent.
It worked for George Soros. It works for others. No reason we can't make it work for you.
As documented by Bloomberg, a hedge fund manager with Soros' record starting with $12 million, and not taking any more money from investors,
and reinvested his share of the profits pretax, would have after 40 years
Had taxes been paid at the time the income was earned, the original $12 million investment would have grown to only
By employing available tax deferral strategies, George Soros' net worth was at the time of the story around
That's why Net Worth Neutral yacht ownership starts with a confidential tax review.
At YES, Yacht Executive Solutions, we believe this is a good place to start - low hanging fruit- in making the yachting lifestyle net worth neutral and even profitable over the long term.
Unfortunately few trusted traditional advisors, CPAs, attorneys, wealth managers, yacht brokers, yacht management companies, etc. seem to be of much help in making the yachting lifestyle positively cash flow.. Many seem to be understandably distracted as they wrestle with their own demons.
Many advisors are simply being increasingly overwhelmed by the rapidly expanding regulatory environment and unable to focus adequately on the impacts upon the yachting lifestyle.
Finding ways to make the yachting lifestyle more affordable is probably not a priority for most other advisors. But it is for us.
That's why we created YES Yacht Executive Solutions.
NOT ONE CPA WAS CORRECT
This point was recently emphasized again by the current Chairman of the House Ways and Means Committee. U. S. Congressman Kevin Brady's citation of the policy paper number 130 by David Keating the senior counselor of the National Taxpayers Union, and particularly the section "Experts Agree They Can’t Agree on Tax Bills", where he reminds the reader of the Money magazine tax projects,
"For many years, Money magazine’s annual test of tax preparers for a hypothetical household proved that paid professionals often make huge mistakes.
In 1998, the last year Money administered the test, all 46 tested tax professionals got a different answer, and none got it right. The professional who directed the test admitted “that his computation is not the only possible correct answer” since the tax law is so murky. The tax computed by these tax professionals ranged from $34,240 to $68,912.
Not one of the CPAs got it right. For just a minimal simple family tax return, the subject tax liability varied by a range of more than 100%. And that was just between a small sampling of just 46 CPAs. (It makes one wonder about the variance in complex tax returns.)
He also documents in the policy paper the situation has not improved in recent years but probably worsened.
In the U S, the top 50% of income earners pay 97% of the income tax. The top 5% of earners pay 60% of all taxes while the top 1% earns only 19.6% of the income yet pay about 41% of all the taxes.
Even the most skilled and highly paid CPAs, attorney’s, and advisors, can’t keep up with the constantly changing and increasing regulatory and tax environment.
Data collected by researchers at George Mason University’s Mercatus Center shows that the Code of Federal Regulations, where all rules and regulations are detailed, has ballooned from 71,224 pages in 1975 to 174,545 pages last year.
In the ten years between 2001 and 2011, the federal government issued over 38,000 final rules and regulations. We'll see how the current administration performs.
Over burdened advisors - no matter their credentials,
adversely affect your taxes, net worth, and your yachting lifestyle.
Congress has estimated that well over half of all taxpayers overpay their taxes by not taking advantage of available tax provisions. This is especially disturbing because over 89% of taxpayers that overpay their taxes use “professional” fee paid tax preparers such as CPA’s and accountants.
U.S. Senator Charles Grassley, current Chairman of the Judiciary Committee, and former Chairman of the Committee on Finance, expressed his concern that thousands of taxpayers overpay their taxes because they are unaware of tax benefits Congress enacted to help them.
“The IRS is a lot better at finding underpayments than overpayments, Grassley said. “That’s a real shame. Congress enacts a tax benefit with the intention of every eligible person taking advantage of that benefit. If the majority of eligible taxpayers don’t know about the benefit, then the IRS has to do a much better job of educating people. I’m very concerned that tens of thousands of taxpayers aren’t taking advantage of the available tax provisions. Even worse, a lot of paid tax preparers were in the dark. There’s no point in paying somebody to do your taxes if those folks don’t do you any good.”
Grassley’s comments are in response to a report from the Treasury Inspector General for Tax Administration showing that less than half of the eligible taxpayers are taking advantage of the specific income tax provisions. According to the report, Congress estimated well over one half of the taxpayers overpaid their taxes by not taking advantage of the provisions. The vast majority of their tax returns – 89 percent – were prepared by paid tax preparers.
The report said the paid preparers didn’t know about key changes in the tax code, didn’t think their clients would benefit, or used preparation software that led them to believe there would be no benefit.
Most professional advisors are proud of their accomplishments and place great value on their client relationships. They take great care not to jeopardize their position with their clients.
Nevertheless, it is just human nature that when presented with something new and innovative or something they may have overlooked that might help their client, but could also potentially run counter to their own self-interest, many advisors and CPAs would not "rock the boat" so to speak and simply default to the status quo - even if it may not be in the best interest of the client.
A CPA advising the boat business yacht charter management schemes confided the reason for failing to fully disclose the true tax risk and liability was, "I don't want to scare anyone off".
It's a write off!
The reality is much worse. CPAs have admitted much worse behavior than that, or what the US government studies confirmed and Senator Grassley was lamenting above.
More than one CPA has admitted they never recommend any new idea or strategy that could help their client - no matter how good it may be for their client- if the idea or strategy was initially suggested or introduced by someone else.
As they explain it:
"Recommending a third party's new investment or tax strategy is a no win proposition for me.
If I admit the value of the new strategy as a good idea and recommend it, and it is successful, the third party gets all the credit.
However, my client may start to wonder about my abilities and why I didn't think about it and suggest it before this other third party. My client may start to calculate how much money he could have saved over the years if I had suggested this new strategy to him sooner - and how much those savings could have compounded to over the years of not implementing this "new" strategy.
My client may also start to wonder what else I may be missing or overlooking.
I stand a very good chance of losing an existing client by recommending any strategy or opportunity offered or introduced by someone else - even when that strategy turns out to be successful, profitable and performs exactly as expected and was very beneficial for my client.
On the other hand, if I go along, allow or recommend a strategy or opportunity offered by some third party, and the opportunity fails to meet expectations or has any other problems - for whatever reason, I get the blame for allowing the client to participate.
The client wonders about my competence.
For me, there is nothing good that can come from it, and I loose either way. Thus I always advise all my clients against all ideas, strategies and opportunities that I don't present first or that are presented to my clients from some third party. No matter how good it might be for my client"
But it is not just CPAs that are being overwhelmed.
Likewise a similar study of more than 1,000 charitable giving professional advisors including CPAs, attorneys, and financial advisors found a similar result. The study consisted of randomly selected questions posed by a group of professional charitable giving experts.
Consequently the study found that when asking these “professional advisors” about their specific area of expertise – charitable giving- that no group answered more than 70% correct. On average per group, CPA’s answered only 30% correctly, financial advisors 45%, and attorneys 65%.
To quote one of the researchers, “Most financial experts are not up to speed when it comes to the mechanics of charitable giving, even though that’s what their wealthy clients want. These are the people who are supposed to know this stuff, and they didn’t.”
Professional tax, legal, and financial advisors have a difficult if not impossible challenge keeping abreast of all the tax and regulatory changes of their practice specialty – much less find the time and resources to focus on the potential effects of only a sub-set of their clientele – yacht owners.
It is the very rare advisor that makes the yachting lifestyle a priority and finds the time, resources, and ability to proactively seek out and design strategies that may have little value to other clients or other industries.
Understandably your advisors must prioritize their limited resources to address the needs of the majority of their clients.
Not surprisingly, some of the lesser known, newer, or more specialized benefits and strategies may from time to time be occasionally be overlooked until brought to the specific attention of your regular CPA, attorney, or financial advisor.
As yachting specialists, we are able to focus on the needs of the yachting community and with a yachting perspective; we are able to help your other advisors be more productive and effective.
That if your current advisors knew, surely they'd have told you already- wouldn't they?
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