As a professional mariner, I much prefer Taco Tuesday to W-2 Wednesday. Nevertheless, Taxes are due on the 15th and we at Tall Ships America decided to take the time to discuss a few tax-related items before those last-minute filers submit their forms. Please note that TALL SHIPS AMERICA IS NOT LIABLE FOR THE IMPROPER FILING OF YOUR TAXES.
1. Yes, you’re a transient. But you’re still an American. Don’t attend public school anymore? Don’t stay in one place long enough to have a library card? Too young to have any hope of receiving Social Security before it runs out? Don’t use state-maintained highways because you’re always at sea? Hoping that there’s some clause that will expunge you of any tax obligations? My father says, “Too bad – you still have to pay your taxes.” Even if you’re an American working on a vessel in international waters, your earnings are still U.S. income, and must therefore be reported. Sailing in international waters or working on a foreign-flagged vessel does not mean that you are working in a foreign country and does not exempt you from U.S. income taxes. However, mariners paying non-U.S. taxes on that foreign income or mariners earning money while in foreign ports and foreign waters may be eligible for a ‘Foreign Earned Income Exclusion.’ Be warned that the conditions of this clause can be confusing, that many people have been audited for taking this exclusion, and that filing this form incorrectly can be viewed as tax evasion.
2. Deductions, deductions. Most of the time, I spend a few hours counting up every single out-of-pocket expense from the past year only to discover that I should just take the standard deduction. But, for those of you sailors interested in itemizing your every expense, a checklist by Tax Shack Inc or a worksheet created by CPA Martin Kapp may prove useful. Whether traveling to meet a ship, taking a USCG course to raise your credentials, feeding yourself on a day off, or purchasing job-related safety equipment, sailors can accrue a lot of expenses while traveling for work. Just remember that the only eligible items are the ones purchased out-of-pocket (and not reimbursed) – so no claiming those delicious hot meals that the cook provides every day!
3. Home is where the heart is? In 2013, I was hired by five independent companies, sailed on three tall ships and one racing boat, and received W-2s from four different states. It made filing my taxes a little daunting. But when I finally sat down at the computer, TurboTax threw out the most difficult question of all: What is your state of residence? Here are some suggestions from Scuttle or Swim as to how you can answer the question:
- When you get off of the vessel, where do you go first?
- Where do you own property?
- Where have you signed leases?
- Where is your family and ties?
- Where are your bank accounts, management accounts?
- Where are you registered to vote?
- Where are your vehicles insured?
- Where do you spend your time when you’re not working?
Now, this question is important, because mariners in the foreign, coastwise, intercoastal, interstate, or noncontiguous trade only have to pay state and local taxes in your state of residence, as opposed to your state of employment, and can claim nonresidency in all other states from which you’ve earned money (46 U.S. Code § 11108 – Taxes). According to the IRS, your residency can be anywhere that you intend to call home (and where you are physically present for a significant portion of time, of course). So that answers the legal question.
That said, when it comes to your personal sense of where home is, there’s a different question that I feel more accurately identifies the place I call home: Where do you wash your laundry?
4. Sources. If you still have questions, you might want to read 46 U.S. Code § 11108 – Taxes (see Subtitle II – Vessels and Seamen). Alternatively, some additional sources which may prove useful and/or interesting are below:
Case of Johnson, Marin I., (2000) 115 TC 210 / Westling, Jim L., (2000) TC Memo 2000-289