Yet, perhaps that's not even the most important question.
The right question is not - can yacht charter be profitable - but how profitable do you want to be?
Which leads to perhaps the most important question. How does the IRS view your "charter activities"? Business or hobby?
where 80,000 new IRS employees are tasked to increase audits of those earning over $400,000,
And be certain that as early as possible, to take full advantage of every opportunity to ensure their charter business profitability: consistently earning substantial net after tax profits.
For those that learn the smart money secrets such as smarter charter and other strategies that can turn $23,000 into $840,000, yacht and jet charter will never be the same. It totally changes the dynamics and any conversation about conventional yacht and jet charter.
HOW PROFITABLE DO YOU WANT TO BE?
We recognize that not all yacht and jet charter owners seek to maximize profits.
Generally, if someone buys a yacht or a jet, they already have adequate financial resources and by offering charters, are merely seeking to recover, or minimize their costs of enjoying the luxury lifestyle.
In fact, most probably prefer that no one else ever use their assets, and certainly no strangers, but they reluctantly agree to do so by chartering in order to somewhat mitigate the costs of the lifestyle with tax benefits and limited cash flow.
Mitigating the purchase, depreciation and annual operational costs often enables them to buy a larger jet or yacht than they, their spouses and their advisers might otherwise be comfortable.
Unfortunately, in order to take those mitigating tax deductions, the IRS requires a significant net after tax profit in 3 of 5 years, otherwise your charter activities are deemed a hobby and not a business. Whereby the tax payer then has the burden of proving the primary purpose of the yacht or jet ownership is to earn a profit.
Everything is so much better for everyone - if the charter owner can earn a profit.
NOT ALL YACHTING INCOME IS EQUAL
The YES advantage is that we are uniquely able to provide additional sources of non charter income that can accomplish a yacht or jet charter owners' otherwise conflicting objectives; "how to pay for the luxury lifestyle and enjoy the asset without over using it, tearing it up, increasing the expense and depreciation?
Here is a brief sample generic example largely derived from actual experience.
Adjusted Gross Income (AGI:) $6,000,000
Annual Over Payment of Taxes: $1.1 - 1.8 million
Yacht Purchase Price: $3,500,000
Cash flow positive in year 1
Estimated First Year Tax Savings: $1,200,000
Estimated Net Income: $2,200,000
Included in the generic example are summaries of three scenarios of various five year plans whose profitability is based upon how aggressive the client wants to be in earning a profit.
Please note that YACHTING INCOME includes Charter and other yachting income.
And that the category OTHER INCOME of which we don't even consider in these scenarios, includes the Non yachting related income.
JUST AS NOT ALL YACHT INCOME IS EQUAL
NOR IS ALL CHARTER INCOME
THERE'S TRADITIONAL CHARTER:
Have you ever asked a yachting professional that's NOT trying to sell you a boat or offering to "manage" your yacht - about net after tax profits from yacht charter?
“It’s very improbable that any charter super yacht will turn a profit. Charter is about offsetting expenses in a financial sense – in the past ten years of me covering the industry, I have heard of only half a dozen yachts that have turned a profit but they were yachts that their owners didn’t really use as personal vessels; they were custom built machines especially for charter, in other words, they were built for business, and that’s not really what we’re talking about here. The vast majority, 90 – 95% of super yachts that charter, do not earn a profit, what they earn is money to offset expenses. There is simply no way that an owner will be able repay their capital repayments based on charter – that’s not what the charter business is about”.
AND THEN THERE'S SMARTER CHARTER: The Secret of smart money
Smarter Charter for yacht and jet owners is an enhanced proprietary management protocol that provides substantial competitive advantages for owners with yachts and jets in charter to significantly reduce their costs of ownership and operations while maximizing POSITIVE cash flow and NET AFTER TAX PROFITS.
Is it realistic to actually maximize net after tax profits by chartering less? YES
New Challenges Are New Opportunities
Contrary to what someone trying to sell you a boat or yacht charter investment may tell you, boat charter has always been a difficult business. For most it's so difficult to consistently make a net after tax profit - they don't even discuss it.
Consistently earning a net after tax profit will likely become even more difficult. Now with the growing political commitment to climate justice and making sure the most affluent and successful pay their fair share.
Not only do U S political leaders promise to eliminate most of the tax incentives exploited - many say abused - by charter boat owners, but also plan greater tax compliance enforcement action with more IRS audits of selected groups. The groups selected for greater tax audits are sure to include many boat owners and business owners.
Then there is government response to Covid-19, it's possible mutations, and even future viruses. It's impossible to predict when recreational travel may return to normal, for what areas, or at what costs.
Thus, boating and boat ownership in general, but especially charter boat ownership, is sure to become more challenging and more expensive via higher fuel costs, substantial new taxes, higher tax rates, increased regulation and IRS tax compliance audits - all with the priority of reducing CO2 emissions.
Many charter boat businesses - and those boat owners that have been playing fast and lose with the tax code - will probably not survive.
Therein lays the opportunity for profit. But it's much more than just limiting the supply of competitors.
Now more than ever, ensuring everyone pays their fair share does not only include taxes, but also paying one's fair share of pollution costs.
Imagine the competitive advantage - and profitability - for a yacht owner or charter boat business who's charters could not only be tax deductible for the charter guests taking the charter - but also could be 'CARBON NEUTRAL' and even help reduce their larger carbon footprint?
Perhaps then, a better question may be:
Can Jet & Yacht Ownership Be Profitable?
Now in addition to Net Worth Neutral Yacht Ownership which makes the yachting lifestyle prudent wealth management, and Carbon Neutral Yacht Ownership makes the yachting lifestyle environmentally and economically sustainable, traditional boat charter becomes necessary to make boating more affordable.
Perhaps there may be some other questions you should ask.
Why are you even considering chartering your yacht?
Do you really want to charter your yacht?
Or is it an attempt to mitigate the lifestyle expense, an effort to recoup some of the purchase price and operating costs?
Yacht charter with consistent, predictable long term net after tax profits, is an alien concept to most yacht owners, yacht brokers, and yacht charter managers.
For most yacht owners, actual net profits from yacht charter are little more than some hazy far away dream, a phantom, a fantasy, an illusion they may only fleetingly glimpse now and again or a fairy tale told by an enthusiastic yacht broker eager to close a sale or to convince someone else to fund his inventory of charter vessels.
Consistent net after tax profitable yacht charter does not even seem to be seriously considered by most yachting or investment professionals.
In the highly competitive world of yacht charter, where it seems as almost every other boat is for charter, it is all charter managers and yacht brokers can do just to help mitigate some of the yacht owner's expenses and maybe justify some tax deductions if the yacht owner so dares.
Loss minimization, recouping expenses is NOT profit maximization
There are a few profitable yacht charter ventures and those that are - vary greatly depending on the vessel and locations. We find that most yacht owners would prefer NOT to charter but do so in an attempt to recover some of their costs. Thus we are not generally advocates of yacht charter as we believe there are preferred strategies producing greater returns with less risk of becoming an IRS audit trap.
But you can't really blame the yacht brokers or charter managers. It is how the yacht charter industry evolved. That's the status quo of yacht charter, just the cost of the yachting lifestyle. And the powers that be have little incentive to change.
Why should they, they get paid up front for selling a boat, then a commission per charter and maybe general a management fee. They don't have any inventory expense for their charter enterprise as the yacht owner is footing that bill. After all, they may have sold yacht to the yacht owner, so they are actually doing him a favor to help with the expenses.
However, what if a yacht charter manager or a yacht charter broker, were NOT paid commissions off the top, but rather what if they shared in the net bottom line profits along with the yacht owner? Or if a yacht could charter all it wanted, at prices 20 - 50% higher and only to a select pre-approved clientele?
Do you think there might be some net bottom line profits then?
So you may be wondering, “How can YES Yacht Executive Solutions make yacht charter profitable when my other “advisors”, yacht charter manager, yacht charter broker, banker, CPA, attorney, financial advisor, wealth manager, etc. can’t?”
YES is different. We have other proprietary programs, strategies, and affiliates. Suffice it to say, we have a different perspective, we don't just sell yacht charter.
We also operate differently.
Rather than fee or transaction based, our compensation is largely determined by our clients’ long term financial success. In this case, minimizing any adverse impacts that yacht ownership may have on a client’s net worth. Our goal is for yacht ownership to be net worth neutral or even profitable.
If our clients / partners don't make a profit, neither do we.
We take more of an investment banking philosophy when working with our clients, strategic partners, yacht owners, brokers. Not only do we help structure and facilitate transactions that can get to that immediate YES and closed – but we maintain long term mutually beneficial and profitable relationships.
So for owners of charter yachts that desire to charter, our proprietary yacht charter programs, can be profitable. Very profitable because we share in the net profits.
Our ability to provide proprietary programs and customized, comprehensive and coordinated solutions for the unique economic and financial objectives of each individual yacht owner – enables us to offer substantial long-term value to yacht owners - long after the enthusiasm of the initial yacht transaction has waned.
That if your current advisors knew, surely they'd have told you already- wouldn't they?