Let’s take tax planning to the next level!
There were troubled times with our economy. The IRS was announcing audit increases across the board. Mariners were being audited at a high rate due to the “Sailor Tax” scam making the IRS’ dirty dozen list. Call after call, all the same – “Do I have to pay this??? What are these $5,000 penalties??? Are my returns okay??? What deductions can I take?”.
There were many issues. It was very unfortunate. Mariners were generally not at fault. How would a Merchant Seaman know that their tax preparer was not following the Courts’ order? That’s why mariners hire professionals to assist in determining tax positions.
Preparers were quick to state that there were secret methods associated with the preparation of tax returns for Merchant Seamen. They screamed that sailors couldn’t e-file because special documents had to be attached to a return and mailed in. They had no authority to back this up. Some cited regulations for document procurement associated with amended returns. Long story short – most have begun to listen. Mariners are off the IRS’ dirty dozen list. Let’s keep it that way!
A New Venue For Mariners
Just so we’re on the same page here – we’re happy to have you as a client. We pride ourselves on the long term relationships we develop with clients. There’s almost always an auto forward to Jim’s cell when we’re not in the office. He shipped long enough to know that mariners’ issued cannot always be addressed on the 9-5 time clock… But as much as we’d enjoy you as a client, we refuse to keep public information that can help you private. Over the past year, we have teamed up with many other leading financial and tax professionals to create a new forum –
We were thoroughly impressed with G-Captain’s ability to provide free, open source information to mariners. Scuttle or Swim will provide a forum for merchant seamen to post questions, and find answers to their tax and finance issues. Contributors are not permitted to use this forum as an advertising platform.
Client or not, if you have a question unanswered, do not hesitate to submit it at Scuttle or Swim. We have many contributors and the resources to provide sound advice and opinions.
Structured Tax Planning is Key
The government wants you to pay no more than is legally due. The past years have brought forth myths regarding merchant mariners and taxes. The scuttlebutt has ranged from sailor tax credits to avoiding taxes all together. Most of this is myth dreamt up by crafty accountants and sea-lawyers.
We are here to help you! There’s more to tax planning for mariners than “magic numbers”. Tax planning for mariners is about implementing a strategy that fits your specific needs and goals. Let’s get back on the right track. Clients aren’t test cases for seeing if a deduction will fly. We incorporate accepted strategies in developing your plan.
What do I mean by “developing your plan”? The truth is that sometimes the business deductions you generate while sailing don’t have any effect on your tax due. When income gets too high, ALT Min comes in and snatches away the tax benefits generated by your business deductions. “Developing your plan” involves taking current and future tax changes, for-casting income, and implementing accepted tax and credit sheltering recommendations and techniques. There are planning techniques that can help you minimize short and long term tax effects. If planned correctly, taxable events can be minimized and in some cases completely eliminated.
The decision has been made on foreign earned income exclusions for mariners.
The IRS won its’ case. Any wages earned in international waters by US citizens are US income regardless of residence. http://www.ustaxcourt.gov/InOpHistoric/Cl3ark.TCM.WPD.pdf Before this case, mariners had often successfully been allowed to exclude income from international waters. Now there is no question, only foreign port or foreign water time can possibly be excluded. For most mariners international waters is where the majority of their time is spent. This is in addition to meeting the BonaFide resident or physical presence test. Many people have been audited for taking the exclusion. Many could also be subject to a six year statute of limitations as opposed to the more common three year statute for audit.
There are new rules regarding section 121 exclusions and second homes.
Section 121 provides a $250,000 capital gains exclusion on the sale of a primary residence meeting certain criteria held two years or more. In the past people have made their second home their primary residence for two years, then sold and utilized the 121 exclusion on the sale. New rules force us to allocate the percentage of time the property was a primary/secondary residence to the exclusion. This can virtually eliminate the benefits from section 121 upon the sale of a property that has been owned for a long term. If you were utilizing this type of strategy, you might benefit in considering a section 1031 exchange as an alternative.
Mariners! Don’t believe the myth that there is a sailors’ tax credit you receive simply for being on a vessel.
You need to INCUR actual expenses in order to take incidental per diem deductions. The IRS is showing zero tolerance with the unsubstantiated practice.
State income taxpayers
Just because the IRS allows a deduction doesn’t necessarily mean the State is of the same opinion. Make sure your positions are supported on all venues.