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Your client, a physician, recently purchased a yatch on ...

Your client, a physician, recently...
Your client, a physician, recently purchased a yatch on which he flies a pennant with a medical emblem on it. He recently informed you that he purchased the yacht and flies the pennant to advertise his occupation and thus attract new patients. He has you if he may deduct as ordinary and necessary business expenses the costs of ensuring and maintaining the yacht.
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Answered in 16 minutes by:
7/4/2008
Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9,783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
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HelloCustomer

Under IRC section 162, expenses are deductible when they are "ordinary and necessary" for conducting a trade or business. And while advertising might be considered a legitimate expense for many businesses, deducting the cost of insurance and maintenance on a yacht merely because you fly a pennant with a medical emblem would hardly be considered to be ordinary and necessary.

There actually was a case in the US Tax Court where a CPA/attorney with a tax practice tried to write off his yacht. He flew a red, white, and blue pennant with "1040" on it. His goal was to provoke inquiries and promote business by giving him contact with potential clients in yachting circles. The court held that the yacht expenses were not deductible as ordinary and necessary expenses of carrying on a business. (Henry v. CIR, 36 TC 879 (1961).)

If this answer was helpful, please press the Accept button. Positive feedback is also appreciated.

Thank you.

Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9,783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
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