Commercial Fishing CPA Explains How-To Manage Taxes for Fishing Households

Commercial Fishing CPA Explains How to Manage Taxes for Fishing Households

I debated whether to post because I didn’t want to intrude on the holidays. But then I thought, what better gift than ease of mind going into the new year? That sealed the deal. Janiese Stevens and the team of Wallstrum Stevens CPA come from a big commercial fishing family, so they know the nuances and personalities, expenses, and how to make taxes less of a headache for salty folk like us. 

*The bonus is that you don’t have to live in the same state to use their services! Wallstrum Stevens is accepting clients through February, and Chris and I just requested to get on the list. Save this blog knowing there is a team of accountants who understand the industry and can manage your taxes to reflect that. If you already have a CPA, consider asking the questions below to maximize your tax benefits.

>>> Never let paying taxes drain your bank account again! Click here to grab the FREE Budget Guide for Commercial Fishing Couples to Thrive that will help you wealth build, track income and expenses, grow investments, manage debth, and more! <<<

(Speaking of, shout out to fellow POCF and writer Tyler Rose Counts for recommending Stevens and the financial book Profit First! I love how we can lean on each other in this community to find products and service providers that “get” our lifestyle. Here’s to more money in our pockets – thanks, Tyler!)

Stevens generously gave her time to deliver thoughtful information that may answer the questions you’ve got forming in your head (see below!). If anything else pops up, leave it in the comments below or email Stevens directly at Jstevens@ak.net or Wallstrum Stevens CPA LLC.

Let’s meet Janiese!

Q&A: Janiese Stevens of Wallstrum Stevens CPA LLC – a CPA who understands the commercial fishing industry!

Tax Q&A for Commercial Fishing Partners and Families

What records should I keep?

Any expense you deduct, you should have substantiation for. Bank or CC statements do not suffice in the event of examination. I suggest just putting receipts in a manila envelope in case they are needed. For meals, write the business purpose on the back. Keep records and tax returns for seven years. Any asset you still own, like a vehicle or home, keep purchasing documents of those throughout their life, even if it is beyond seven years.

How should I prepare for tax season?

I tell clients to open a separate bank account or credit card to use specifically for fishing-related expenses. Then at the end of the year, they only have a few sources they are extracting information from. The IRS allows anything that is “ordinary and necessary” in the course of your business to be deductible, so anything under the umbrella of fishing counts. Gear, supplies, InReach or Iridium satellite phones, etc.

I prefer to have expenses categorized and added up. Then if I have questions about what is in each category, I can ask. In addition to expenses, you will need to gather any 1099’s, W-2s, and any other year-end tax documents you received.

What business expenses can I deduct?

See above, but I will elaborate. Since many different types of businesses exist, the IRS does not give specific categories. Rather, they say anything that is “ordinary and necessary” in the course of your business. This means:

• Gear
• Supplies
• Satellite messengers and a percentage of cell phones
• Small electronics used on the boat
• Vehicles are allowed with the caveat – if it is a “mixed-use” asset, meaning you use it for both personal and business, you are asked to keep a log so you can say how many miles you drove in a year and how many of them were business.
  • For example, if someone says they drove 5,000 miles in a year and 2,500 of them were business, then ½ of the fuel, insurance, repairs, and interest is deductible, and a percentage of the cost of the vehicle can be depreciated over time. The same goes for business use of the home. If you have an exclusive space you use for work, that percentage of rent or mortgage, real estate taxes, etc., can be deducted.
• Travel can be deductible but not “commuting,” so once you’ve gotten to where you are working, if you have to then travel for the job, that is deductible.
• Groceries or per diem (rate for days at sea)
• Small tools used for fishing
• Crew members license
• The portion of tax prep and legal fees associated with commercial fishing
• Industry-specific travel, such as the Pacific Marine Expo.
• Other items you spent specifically for commercial fishing
• Meals with a business purpose.

When and how should I pay estimated taxes?

The IRS makes it easy to give them money. They suggest quarterly payments. To do this, you can use form 1040-ES you can find on irs.gov, and send them in. if you miss a quarter, don’t be discouraged; just send them in when you can. The IRS also allows you to make tax payments directly online as well as through their EFTPS (Electronic Federal Tax Payment System.) Some tax professionals will send in payments for you, keep a record of them and send them off certified so, during tax time, it’s clear what you sent in.

How can I better manage my cash flow?

I tell most commercial fishermen do an easy percentage calculation. Self-employment tax is 15.3% of any net income (income after expenses), and there is a federal income tax on top of that. If you’re making up to 100K, assume .20 cents of every dollar doesn’t belong to you. If you’re making over, then .25 cents to .35 cents of every dollar, depending on your tax bracket.

Send quarterly payments or put them in an account you can’t access easily to ensure you have the money to pay your taxes on time. Paying last year’s taxes with this year’s money is tricky for fishermen since their seasons fluctuate frequently.

Fishermen are seasonal, so they may get large amounts of money only a few times a year. Put aside what you’ll need to pay taxes and then budget the rest until your next season.

How can I reduce my tax bill?

As I mentioned, have a separate account or credit card to track all your business purchases. More often than not, you spend more than you think you do on fishing-related expenses. In addition to this, commercial fishermen are considered self-employed, and health insurance is 100% deductible.

If you have an HSA-compatible plan, you can also contribute to an HSA for out-of-pocket expenses before you hit your deductible.

SEP retirement contributions are allowed until the tax return’s due date, including extensions. As long as you have an account established in the year you want to contribute, you have until October 15 of the prior year to make a contribution.

For example, for the 2022 tax year, you have until October 15, 2023, to make a contribution (or whenever you file, whichever is sooner.) Find a tax professional who is familiar with commercial fishing. It may cost a bit more in fees, but you will save much more in taxes.

What kind of deductions do I qualify for?

See above to clarify.

Health insurance and HSA contributions are 100% deductible for self-employed individuals.

SEP retirement accounts, as well as traditional IRA and Roth IRA

As of now, we also have the “QBI” deduction, which is a deduction available to small businesses and is a calculated percentage of your net income

Commercial fishermen are allowed to average income over the last three years for federal tax purposes

Same as anyone else – standard or itemized

If you have children and pay for childcare, the child care credit and child tax credit may be available.

Fishermen who had a bad year may qualify for the Earned Income Credit.

What is the difference between marginal and effective tax rates?

Effective is an average. Say your income is 100k, and your tax is 20k; your effective tax is then 20%

Marginal is the highest bracket you are in.

Which is better: a tax credit or a tax deduction?

I like to explain it above and below the line. Anything you take off income before tax is figured is a “deduction.” I.e., a deduction from income before tax is calculated – above the line.

A credit is below the line. It is after tax is calculated, and it comes right off your tax bill, but they’re limited in who can take them and how much, so I wouldn’t say anyone is better. They both help reduce your taxes.

Can I deduct medical expenses?

If you are a boat owner and someone gets hurt on board, what you pay out of pocket until you hit your P&I deductible is deductible. Crewmembers who have personal medical expenses will not see much mileage out of them unless they have HSA-compatible health insurance and use it to pay for out-of-pocket medical expenses. Otherwise, they are subject to limits and go towards itemized deductions. Unless they are substantial, you will not see any benefit.

Should I itemize or claim the standard deduction?

The IRS allows you a standard deduction of 12,950 if you’re single, 19,400 if you’re head of household, and 25,900 if you’re married in 2022. This is automatic. If you have mortgage interest, real estate taxes, charitable contributions, and medical expenses above 7.5% of your income that adds up to more than the standard, then you can itemize. Most people in the US take the standard deduction since it was increased a couple of years ago.

How can you help me grow my business?

I don’t know if I would say I can help anyone grow their business. I can provide tools to assist them in their success, such as helping set up accounting procedures and policies, training in accounting software, and giving tax advice as they navigate through their business to help them make informed decisions.

How can people work with you? Must they live in Alaska (or does seasonal AK work count?)

They can email me at jstevens@ak.net or call the office at (907) 512-2726, and no, they don’t have to live in Alaska.

I am on Kodiak, my sister is a CPA licensed in WA and works out of Seattle, and my other partner Miranda is on the mainland outside of Anchorage, Alaska. There are 3 CPAs total in our firm, and though we will verify their identity, they don’t need to be physically present most of the time.

Are you taking new clients? If so, when is the deadline for them to contact you?

We usually like new clients to reach out to us by January/February to get on our list. If it’s past, then we may have to file an extension. We do get to a point in the year we do not accept any new clientele, so the earlier, the better.

What was the most helpful piece of advice for you in this post? I would love to know in the comments below!

If you liked this, you’d love 6 Marine Safety Devices That Could Save Your Fisherman.