Anyone run a business with their spouse?

Lando

Lando

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Lando
My wife and I have been fortunate enough to grow our consulting business considerably over the past couple years and I would like to start looking at acquiring a company-owned aircraft later this year. This is NOT a "what plane should I get?" thread though. As a non-commercial-rated private pilot, there could be some complexities to flying the plane for business if it's not just me on board. Here are the things I'm wondering if anyone has experience with:
  • Could we each pay our pro-rata share, but then reimburse that as travel expenses to ourselves through the company? (Just like normal travel expenses would be reimbursed if I paid for them on a personal credit card)
  • Is there any requirement to a certain percentage of use that has to be considered "business use" if the company owns the plane?
  • If we use the plane for non-business family travel can I just set a reasonable "wet rental rate" and then track that as income to comply with IRS and FAA rules?
 
Who would you be carrying?
I was dropped by my worker's comp for having an airplane years ago.
I emphatically stated it was not used to transport employees but they would not accept my word. I cannot recall how they found out about it.
 
Let'sgoflying! said:
Who would you be carrying?
I was dropped by my worker's comp for having an airplane years ago.
I emphatically stated it was not used to transport employees but they would not accept my word. I cannot recall how they found out about it.
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It would only be my wife and I (or just myself) traveling...NEVER any of our employees.
 
Anecdotal advice... consult the right experts in how to set up the ownership of plane within your business. And be sure to pay and document payment of any sales or use tax owed, if any.

I business owner friend didn't do that and it eventually triggered a sales tax audit of his business that took over 14 months to finally resolve.
 
AggieMike88 said:
Anecdotal advice... consult the right experts in how to set up the ownership of plane within your business. And be sure to pay and document payment of any sales or use tax owed, if any.

I business owner friend didn't do that and it eventually triggered a sales tax audit of his business that took over 14 months to finally resolve.
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Thanks for the advice. Yes, our accountant and attorney will most certainly be involved when the time comes. This is just preliminary research and, amazingly, this is probably the first aviation topic I have not been able to find any record of on POA!
 
I work for the family business and I have similar questions, since the plane will be bought by the company I'm going to use it to cut a 7 hour commute into a 1.5 hour flight. I told my boss (my dad) we should talk to an attorney before we start using the plane we buy for business to make sure what we can and can't do considering i only have my ppl.
 
BigBadLou said:
I know a guy who bought his wife from the Philippines and he runs a business with her where he brings money home and she provides wife services.
Want his phone number? :D
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Reminds me of an old joke but it's ethnic so I will not post it.
 
Lando said:
My wife and I have been fortunate enough to grow our consulting business considerably over the past couple years and I would like to start looking at acquiring a company-owned aircraft later this year. This is NOT a "what plane should I get?" thread though. As a non-commercial-rated private pilot, there could be some complexities to flying the plane for business if it's not just me on board. Here are the things I'm wondering if anyone has experience with:
  • Could we each pay our pro-rata share, but then reimburse that as travel expenses to ourselves through the company? (Just like normal travel expenses would be reimbursed if I paid for them on a personal credit card)
  • Is there any requirement to a certain percentage of use that has to be considered "business use" if the company owns the plane?
  • If we use the plane for non-business family travel can I just set a reasonable "wet rental rate" and then track that as income to comply with IRS and FAA rules?
Click to expand...

The IRS treats business expensing of an aircraft VERY STRICTLY. If you own the business and the aircraft is listed business asset then you in essence 'borrow' the plane from the business when you fly it on personal trips (there are also insurance complexities in doing this). You will have to pro-rate business use versus your private use. Since you will try to mix and match business versus pleasure you will be audited. And you will need to justify splitting maintenance, hangaring etc between your pleasure use and your business use. There is no need to 'rent' the plane to yourself from the business. Also, unless you are commercially rated you cannot split fuel with your business on a pleasure trip. And you cannot charge the business for flying yourself or others in that plane.
 
citizen5000 said:
The IRS treats business expensing of an aircraft VERY STRICTLY. If you own the business and the aircraft is listed business asset then you in essence 'borrow' the plane from the business when you fly it on personal trips (there are also insurance complexities in doing this). You will have to pro-rate business use versus your private use. Since you will try to mix and match business versus pleasure you will be audited. And you will need to justify splitting maintenance, hangaring etc between your pleasure use and your business use. There is no need to 'rent' the plane to yourself from the business. Also, unless you are commercially rated you cannot split fuel with your business on a pleasure trip. And you cannot charge the business for flying yourself or others in that plane.
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Well what I would do is give myself a """"""bonus"""""" that conviently covers the cost of everything for flights at the end of the month. I mean it's your own business so pay yourself what ever you want. It's technically coming from your own pocket.
 
It depends a lot on how the airplane is owned and how your consulting business is organized (e.g. partnership, SMLLC, corporation, etc.). If a business provides an airplane to an employee for his/her own pleasure or convenience instead of the convenience of the business, the income is to be imputed and reported to the employee. This is fairly common in bigger companies. The CEO or some other important employee is allowed a number of hours of use of the company airplane as part of their compensation package. If a non-employee like a wife or kid is allowed to ride, income is imputed for that as well. You would need to calculate the value based on IRS guidance and then include as additional income on your personal return. The depreciation on the airplane may make up for it. Or maybe not.

As for charging yourself a rental rate, you're picking up income on one side and expense on the other, so it all nets to zero.
 
If you have an established business that warrants the use of an aircraft to further that business, then you treat the purchase of an airplane just as any other piece of business equipment and follow the appropriate depreciation schedule. You can use the plane for personal use to a small extent, but will need to keep records of such personal use as that use can not be deducted. I suggest no more than 20% personal use. You're allowed to transport yourself and employees as long as it is strictly for business purposes. As with everything associated with the IRS and other .gov agencies, keep meticulous records and you should be good to go. I do suggest you talk with your accountant and come up with a plan to make it all happen. The main thing is the aircraft has to be incidental to your business. That's what the IRS wants to see. ;)
 
citizen5000 said:
The IRS treats business expensing of an aircraft VERY STRICTLY. If you own the business and the aircraft is listed business asset then you in essence 'borrow' the plane from the business when you fly it on personal trips (there are also insurance complexities in doing this). You will have to pro-rate business use versus your private use. Since you will try to mix and match business versus pleasure you will be audited. And you will need to justify splitting maintenance, hangaring etc between your pleasure use and your business use. There is no need to 'rent' the plane to yourself from the business. Also, unless you are commercially rated you cannot split fuel with your business on a pleasure trip. And you cannot charge the business for flying yourself or others in that plane.
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What's your personal experience with this? Are you an owner, CPA,...IRS agent ?
 
azblackbird said:
I suggest no more than 20% personal use
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Where do you get this number? Seems made up. See my post above regarding the rules for imputing income for personal use. You end up deducting all the costs to the business and then imputing income to the employee for personal use of the aircraft.

azblackbird said:
The main thing is the aircraft has to be incidental to your business. That's what the IRS wants to see.
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Incidental is not required for deductions. In fact, being instrumental is fine as long as you're in compliance with the FARs. The standard for deducting something is "ordinary and necessary."
 
My wife works in my company. We didn't put the plane as a business purchase (not needed as there isn't much out of town travel required). Accountants indicated it's problematic and flags audits. If my business required extensive travel, I would consider it anyway and have everything in ready in case of an audit.
 
Rebel Lord said:
I work for the family business and I have similar questions, since the plane will be bought by the company I'm going to use it to cut a 7 hour commute into a 1.5 hour flight. I told my boss (my dad) we should talk to an attorney before we start using the plane we buy for business to make sure what we can and can't do considering i only have my ppl.
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Look up Drew Coats - lives in The Woodlands and has offices in town. Aviation expert and practice.
 
aggie06 said:
Where do you get this number? Seems made up. See my post above regarding the rules for imputing income for personal use. You end up deducting all the costs to the business and then imputing income to the employee for personal use of the aircraft.

Incidental is not required for deductions. In fact, being instrumental is fine as long as you're in compliance with the FARs. The standard for deducting something is "ordinary and necessary."
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80/20 rule is what my accountant told me is a safe percentage for business/personal use so as not to trigger an audit. He has several business aircraft owners as clients, so I'll take his word for it.

"Incidental to business" is a FAR rule for private pilots who are business owners and use their aircraft for business purposes. "Ordinary and necessary" is an IRS rule for those that want to expense their aircraft for business use. Basically the same rules. You seem sharp enough that you don't need a full breakdown of what applies and what doesn't.;)
 
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azblackbird said:
80/20 rule is what my accountant told me is a safe percentage for business/personal use so as not to trigger an audit. He has several business aircraft owners as clients, so I'll take his word for it.
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80/20 could end up being a stretch. If that's the case, maybe I would be better off buying the plane personally (or through a separate llc) and then just reimbursing us for travel expenses?? Since I don't have a commercial rating, my wife and I could each pay our pro-rata share of business flights and then expense that back to our company, which would be a 100% deductible expense.
 
Lando said:
80/20 could end up being a stretch. If that's the case, maybe I would be better off buying the plane personally (or through a separate llc) and then just reimbursing us for travel expenses?? Since I don't have a commercial rating, my wife and I could each pay our pro-rata share of business flights and then expense that back to our company, which would be a 100% deductible expense.
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You can do that, but you better be damn sure that separate LLC for the plane is going to generate a profit, or at least show a strong intent to generate a profit. You can do that with a leaseback to an FBO for rental/training, or to another business that would make good use of the plane. With that said, you do lose the "I can fly whenever I want" aspect of ownership in that type of situation. You basically have to schedule your own airplane when you want to use it. Be careful... the IRS loves those types of situations, as it's real easy pickens for them if it's not structured correctly and meticulous records are kept.

The best is just to have a business that will support at least 80% or more usage of the plane for strictly business purposes. If you're not in that situation, then you might be better off renting a plane to use for business missions and taking those expenses, and then fly for pleasure whenever you feel like it.
 
azblackbird said:
The main thing is the aircraft has to be incidental to your business. That's what the IRS wants to see.
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azblackbird said:
"Incidental to business" is a FAR rule for private pilots who are business owners and use their aircraft for business purposes. "Ordinary and necessary" is an IRS rule for those that want to expense their aircraft for business use. Basically the same rules. You seem sharp enough that you don't need a full breakdown of what applies and what doesn't.
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I was making the point that the FARs and the Internal Revenue Code have different purposes and can't be used to support one another, which you seem to have confused in your earlier post. They are most definitely not "basically the same rules." To be a bit pedantic, "ordinary and necessary" applies to all expenses, not just expensing your personal aircraft. There's a lot of misinformation out there, including the "80/20 rule" that you'll be hard pressed to support on audit. Plenty of people talk about red flags, but the truth is something like owning an airplane is no more a red flag than anything else. There's no "business use of an airplane" form that would cause the IRS to throw your return into a stack to be audited. The tax treatment of the business use of your airplane is no different than the business use of your car, except that the IRS has not published a safe harbor mileage rate to use to cover all your vehicle expenses.

If your accountant works off safe percentages and rules of thumb instead of the actual law, you need to consider getting a new accountant. Make sure he didn't use some uneducated non-pilot on an internet message board to come up with his rule of thumb and then just apply it to the three "business aircraft owners as clients" he has. I'm a practicing CPA and do this kind of work on a regular basis, for large businesses and small.
 
aggie06 said:
To be a bit pedantic, "ordinary and necessary" applies to all expenses, not just expensing your personal aircraft.
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Yep... you're being overly pedantic. No biggie, I'm used to it with you CPA types. :rolleyes:

It might behoove you to read this, and while you're at it go ahead and read this and the associated links thereof. Very educational if you ask me... no matter if you're an accomplished CPA, or just some dumbass small business owner such as myself. ;)
 
My wife owns the business I work for and I own a plane.

When traveling on business I just submit an expense report with all my expenses including use of my privately owned airplane at the GSA mileage rate (currently 1.15 per statute mile). Same if she's with me or not. It's very simple.

Keeping the plane separate from the business seems to make sense in my case. The expense reimbursement covers my costs, though it might not if you're talking something bigger than a Comanche.
 
Thanks for all the feedback, everyone! Lots of food for thought and definite reinforcement that advice from our accountant and attorney will be necessary.
 
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