Death and Taxes

I was discussing the purchase of my plane with my CPA deciding on a tax strategy. I will use the plane primarily for business as I need to get to remote areas not served by the big airlines (one could argue that no place is truly “served” by the big airlines but I digress)

Do any business owners out there have real world experience in dealing with the friendly IRS in matters concerning the use of a plane for business?

I am not terrified of an audit but I would like to not deal with the hassle. Is an airplane and audit flag?

Thanks for the comments…

Mark

Ps- At least this isn’t about payload, flying pigs ( :wink: to Woor ) , and frequent landing light failure. Maybe Garmin could send a replacement lamp with the GPS update every month. Just a thought?!?

I, too, am trying to figure all that out. My accountant suggested that I set up a company that would own the plane and lease it back to my other company (where I have a real job). As I understand it, I can write off the airplane, and most of the expenses that go along with it, if it is used for business purposes AND the company that ownes/leases the plane makes a profit doing so. I cannot deduct recreational use of the plane. But as I mentioned, I’m researching the subject as we speak, maybe you and I should compare notes. Anyone else have experience here?

Dan

danj@pointshare.com

I was discussing the purchase of my plane with my CPA deciding on a tax strategy. I will use the plane primarily for business as I need to get to remote areas not served by the big airlines (one could argue that no place is truly “served” by the big airlines but I digress)

Do any business owners out there have real world experience in dealing with the friendly IRS in matters concerning the use of a plane for business?

I am not terrified of an audit but I would like to not deal with the hassle. Is an airplane and audit flag?

Thanks for the comments…

Mark

Ps- At least this isn’t about payload, flying pigs ( :wink: to Woor ) , and frequent landing light failure. Maybe Garmin could send a replacement lamp with the GPS update every month. Just a thought?!?

I was discussing the purchase of my plane with my CPA deciding on a tax strategy. I will use the plane primarily for business as I need to get to remote areas not served by the big airlines (one could argue that no place is truly “served” by the big airlines but I digress)

Do any business owners out there have real world experience in dealing with the friendly IRS in matters concerning the use of a plane for business?

I am not terrified of an audit but I would like to not deal with the hassle. Is an airplane and audit flag?

Thanks for the comments…

Mark

Ps- At least this isn’t about payload, flying pigs ( :wink: to Woor ) , and frequent landing light failure. Maybe Garmin could send a replacement lamp with the GPS update every month. Just a thought?!?

One good source that I found was AOPA. www.aopa.org/members/files/guides/tax02.html also same prefix plus 04html, 05html, and 06html.

What I ran into was that unless your accountant knows/or has researched thoroughly about airplanes they are just plane (opps!!) ignorant.

I know people who have set up airplane corps for the purpose of tax deductions but all your “i’s” must be doted and “T’s” crossed. Another down side is that after depreciation any gain which is likely with the Cirrus must be reported as income.

Hope this helps Mike Myers

Gentlemen:

There are many aspects to consider in how to deduct for business use of an airplane.

To begin with as long as the use is “ordinary & necessary” expenses will be allowable under §162 of the Internal Revenue Code.

Condideration must be given to the alternatives of how the plane is to be owned. Obviously besides the deductibility aspect this would also effect liability issues as well as potential sales tax issues.

All things being equal (and they never are) with personal ownership you can be reimbursed for the business use of the plane. Of course there are all sorts of issues in determining the reimbursement rate. If the ownership is corporate in a regular operating company you have to be carful about about dividend/compensation issues for your personal/non business use. Corporate ownership in a holding/leasing company would have other issues such as is the activity engaged in for a profit motive.

Even when the plane is held personally and subject to a reimbursement type expense there is still the issue of recapture of depreciation (which should be part of the expenses reimbursed) when the airplane is later sold. Assuming that there is a profit on a later sale the depreciation allowed (or allowable) will be picked up as ordinary income (§1245) and any excess would be §1231 for a business (may or may not turn into capital gain) or §1220 for an individual (capital gain).

I hope I didn’t add to the confusion. The important thing to remember is that the answer is specific to the individual’s circumstances.

Also remember there are ways to minimize the “red flag” or dif impact on a return. As a junior tax accountant many years ago I learned that a certain car was not Porche Turbo 911, but rather transportation equipment.

Eric
(Almost a position holder…until the wife “asked” me to leave…but take her mortgage with me.)

Gentlemen:

There are many aspects to consider in how to deduct for business use of an airplane.

To begin with as long as the use is “ordinary & necessary” expenses will be allowable under §162 of the Internal Revenue Code.

Condideration must be given to the alternatives of how the plane is to be owned. Obviously besides the deductibility aspect this would also effect liability issues as well as potential sales tax issues.

All things being equal (and they never are) with personal ownership you can be reimbursed for the business use of the plane. Of course there are all sorts of issues in determining the reimbursement rate. If the ownership is corporate in a regular operating company you have to be carful about about dividend/compensation issues for your personal/non business use. Corporate ownership in a holding/leasing company would have other issues such as is the activity engaged in for a profit motive.

Even when the plane is held personally and subject to a reimbursement type expense there is still the issue of recapture of depreciation (which should be part of the expenses reimbursed) when the airplane is later sold. Assuming that there is a profit on a later sale the depreciation allowed (or allowable) will be picked up as ordinary income (§1245) and any excess would be §1231 for a business (may or may not turn into capital gain) or §1220 for an individual (capital gain).

I hope I didn’t add to the confusion. The important thing to remember is that the answer is specific to the individual’s circumstances.

Also remember there are ways to minimize the “red flag” or dif impact on a return. As a junior tax accountant many years ago I learned that a certain car was not Porche Turbo 911, but rather transportation equipment.

Eric
(Almost a position holder…until the wife “asked” me to leave…but take her mortgage with me.)

Boy, we could make a country song out of this one, She got the mine and I got the shaft and I can’t deduct the ride in my old country SR20. Thanks for the info,…Ed