LLC advice

Timbeck2

Timbeck2

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Timbeck2
Asking for a friend because if you guys found out it was really me, you'd call me names and such. Anyway, my airplane is registered in my name. At least two friends of mine have registered their under an LLC. How, specifically, does one go about doing this when its already registered as such?

What steps do I, um...my friend need to take and how and what can one write off when the tax man cometh?
 
Not a tax lawyer or accountant, but I'm pretty sure the short answer is not much. Unless you have some legitimate business use that is tied to the LLC. Back in the good old days, a Delaware corp could do a lot for boats, planes etc.

Did I mention that I really have no idea as I'm neither a lawyer not accountant :)
 
Before you do anything, ask your friend this: "Why do you want to place the airplane into an LLC?"

The answer matters.

Many people labor under the misapprehension that, if an aircraft is in a corporate entity (Corporation, LLC, Ltd. partnership, whatever), that the owner is then shielded from liability. This can work (on a limited basis) if you have multiple owners, each of whom is a member of the LLC, and one of them does something bad with your plan, which could serve to protect the other owners from worse liability.

Of course, the best protection from liability is a rocksolid insurance program and, of course, safe operational practices.

Some people think that they can avoid tax in their home state, by placing the aircraft in an LLC or corporation which is native to another state. This is was known as "silly talk, and might or might not work for a while, until you get caught, whereupon you pay everything you would paid anyway, together with substantial interest and penalty.

Of course, if you ever think about the legal expense of maintaining a corporate entity, or the fact that they have another of reporting entity for tax purposes.
 
Unless you are actually operatiing a business, an LLC is useless in terms of liability or taxes.

Liability speaking, you have to think like an attorney. Any lawsuit is about money. Where are the deep pockets? Insurance.
In addition, assuming you have the airplane in an LLC, but are not really operating as a business, it won't take long for any decent attorney to Pierce the corporate veil. After that, it goes straight to the owners of the LLC.
I recommend you Google, "piecing the corporate veil."

Tax protection: My corporation (it is an active corporation) owns my airplane. Obviously business use is deductable and I reimburse the corporation for personal use. There are hoops to jump through, but it can be done legally.

Find a good CPA and get creative! It can be done legally. It's not easy, but it is possible otherwise no corporation would own airplanes.

Sent from my Pixel 2 XL using Tapatalk
 
mwagg737 said:
...Tax protection: My corporation (it is an active corporation) owns my airplane. Obviously business use is deductable and I reimburse the corporation for personal use. There are hoops to jump through, but it can be done legally...
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That is what at least one of my friends does but I'm not really sure how he does it. I own a business license as well but not really sure how to parlay aircraft use to a wood working business. Don't shoot the messenger but this guy is a Delta airlines captain and in short he says he rents his plane to himself. Not really sure how that works which is why I asked here.
 
That's like 10% of the reason I want to own my own plane some day... just so I can have some badass LLC name assigned to it

"The Tantalum Group, LLC" - "The Rothschild Collective, LLC" lol

just kidding
 
SCCutler said:
Before you do anything, ask your friend this: "Why do you want to place the airplane into an LLC?"

The answer matters.

Many people labor under the misapprehension that, if an aircraft is in a corporate entity (Corporation, LLC, Ltd. partnership, whatever), that the owner is then shielded from liability. This can work (on a limited basis) if you have multiple owners, each of whom is a member of the LLC, and one of them does something bad with your plan, which could serve to protect the other owners from worse liability.

Of course, the best protection from liability is a rocksolid insurance program and, of course, safe operational practices.

Some people think that they can avoid tax in their home state, by placing the aircraft in an LLC or corporation which is native to another state. This is was known as "silly talk, and might or might not work for a while, until you get caught, whereupon you pay everything you would paid anyway, together with substantial interest and penalty.

Of course, if you ever think about the legal expense of maintaining a corporate entity, or the fact that they have another of reporting entity for tax purposes.
Click to expand...

Appreciate it Spike. Not so much as a liability shield but potential tax write offs is the advantage I'm asking about.
 
Timbeck2 said:
in short he says he rents his plane to himself.
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Interesting. It would seem he would have to be in the business of renting airplanes to do this. Of course, this opens up some other issues with the FAA. It still comes back to operating as a company with all the book keeping and reporting requirements.
Since he has a full-time job (active income), that would make the rental business a passive income business. Anybody that has rentals knows it is definitely an active business, However; the IRS does not agree. He could write-off against rental income, but not active. Now, if his wife owns the business and does not have active income, and they file a joint return, that could be a different story. In the end, if he gets audited, could he prove he was holding-out to the public in his rental business?

Your situation: Do you have a reason to travel for your business? Researching exotic woods. Meeting out-of-state clients. Obtaining education. Don't forget about your required annual meetings! Nothing says your company can't own an airplane regardless of the type of business.

I'm not a CPA, but I have a very good one that lives and breathes the tax code. He has been worth every penny I pay him!
 
mwagg737 said:
Interesting. It would seem he would have to be in the business of renting airplanes to do this. Of course, this opens up some other issues with the FAA. It still comes back to operating as a company with all the book keeping and reporting requirements.
Since he has a full-time job (active income), that would make the rental business a passive income business. Anybody that has rentals knows it is definitely an active business, However; the IRS does not agree. He could write-off against rental income, but not active. Now, if his wife owns the business and does not have active income, and they file a joint return, that could be a different story. In the end, if he gets audited, could he prove he was holding-out to the public in his rental business?

Your situation: Do you have a reason to travel for your business? Researching exotic woods. Meeting out-of-state clients. Obtaining education. Don't forget about your required annual meetings! Nothing says your company can't own an airplane regardless of the type of business.

I'm not a CPA, but I have a very good one that lives and breathes the tax code. He has been worth every penny I pay him!
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I have a reason to travel and for years it's been the mileage on my truck, hotel expenses, etc. so yes, I do all that now. I'm not really sure about my Delta friend as to who owns the business and such. All I know is that he "rents the airplane to himself" and I don't have a clue how he does that.
 
Sounds like your business will soon own an airplane! :)
 
You don't need to have an LLC to deduct using a plane for business. The "rent to yourself" unless there are other renters, sounds like an invitation to be on the wrong end of a painful audit. One other thing to look at is with the new and much larger standard deduction, how much might you actually save from doing this. I hear so many people, jumping through so many hoops, to " save on taxes", but have no idea of the incremental savings they get from their various schemes.
 
Timbeck2 said:
All I know is that he "rents the airplane to himself" and I don't have a clue how he does that.
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I'm pretty sure if the IRS looked at it, they wouldn't have a clue either.

Folks can claim all sorts of things on their return. Its what stands up to audit that matters. I'm with @SCCutler on the "silly talk" description
 
I have to get smart on:

How to change the registration to the business name? Do I need to in order to be legit?
Can I claim mileage, fuel oil cost, upkeep etc on an airplane and if so, how?
 
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Hang 4 said:
You don't need to have an LLC to deduct using a plane for business. The "rent to yourself" unless there are other renters, sounds like an invitation to be on the wrong end of a painful audit. One other thing to look at is with the new and much larger standard deduction, how much might you actually save from doing this. I hear so many people, jumping through so many hoops, to " save on taxes", but have no idea of the incremental savings they get from their various schemes.
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What can I claim? I deliver pieces via plane and every two years there's a convention in Las Vegas, etc.
 
Another two things which may be minor advantages of the LLC. If you take out a credit card in the LLC name and charge all airplane related expenses on it, that makes it easy to track the hourly cost of operation and this can be useful if you are doing charity flights. I believe the owner of the plane will be listed in FAA databases as being the LLC, rather than you, which provides a minor form of first level privacy (which can also be achieved by requesting the information be not publicly published).
 
It gets complicated fast. As a very broad brush, if it seems like a lot of money to hire the lawyer or cpa, you likely aren't going to find a big benefit. At a simple level, it should be fairly straightforward to deduct fuel cost for business trip if you; document that it was a business trip, have receipts for the fuel, don't bring along family members ( a "business trip" to resort, where you bring along spouse and kids for example). To get into trying to pro-rate the full cost of the plane over the % that is business use, get's real complicated real fast. I have no idea, and don't want to know, your income, but a lot of the tax benefits really need a big income to have much benefit compared to the cost of CPA's ect..

A quick google of "business use of private plane" brings up a mix of happy smiling and very rich people talking about how their business jet is wonderful and specialty firms that help you maximize tax benefits.

Likely those pros are better, but much more expensive than SGOTI.
 
Sam D said:
First, your business needs to make a profit in at least 3 of the last 5 years. Otherwise, the IRS views it as a hobby. (see https://www.irs.gov/newsroom/is-your-hobby-a-for-profit-endeavor)
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No offense, but that is not true and that is not what that article says.


I am editing this post today as I didn't want to start typing a lengthy response on a tablet while I was tired late last night.

If there are POA members that would like me to post a somewhat lengthy response correcting some of the common misconceptions, I will. If nobody really cares, I won't take the time.
 
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Timbeck2 said:
I have to get smart on:

How to change the registration to the business name? Do I need to in order to be legit?
Can I claim mileage, fuel oil cost, upkeep etc on an airplane and if so, how?
Click to expand...

To change name, yes you do, hubs did that I think you just send a piece of paper to the FAA. Maybe a copy of the articles of incorporation I'll have to ask him.

To what you can claim, yes all expenses related to operating, housing, maintaining, repairing the airplane. If you use the plane also for personal use, you total all costs and then apply the prorated amount that you can deduct for business or employment use. Probably based on hours flown rather than "mileage". But if an employer reimburses for "miles traveled" it gets complicated. Get an accountant. Get a lawyer to do the articles of incorporation and explain how or if it provides any legal protection. He will tell you to buy much insurance.

DISCLAIMER I AM NOT AN ATTORNEY OR ACCOUNTANT.
 
My accountant and attorneys have advised me to keep clear separation between my S-Corp and my airplanes. I maintain personal business coverage on my planes but do not use them for company business. Different strokes, I guess. If you think there's an advantage of your plane in a business role just sell your plane to lease your plane to the business.
 
As one who has formed both a corporation and llc, I agree with SCCutler above.

Understand that your state will likely treat the transfer from your name to a llc wholly owned by you as a sale triggering tax due based on fair market value. I know my state will.

Answer the why and how questions about expected benefits of doing it before doing so.
 
I'm not an attorney or accountant either, but I see the messes frequently that are created by attorneys and accountants advising their clients to create LLCs. I'm amazed there aren't more suits against attorneys and accountants.

He needs to be able to articulate in detail the benefits of creating an LLC. And the down sides. And why the benefits outweigh the detriments.

I'll give you an example, although one unrelated to aviation, just to demonstrate the messes that some of these idiots create for their clients. Something I see a few times a year is a house owned by an LLC. The guy and his wife take out a homeowners policy, except the policy requires the home to be owned by the named insured. The acct/attorney hasn't thought this through, probably thinking "he owns the LLC, so he owns the house". Then a storm comes through and there's tens of thousands in damage...and then the adjuster discovers Joe Smith doesn't own the house....Smith LLC does, and he can't pay the claim.

And it's even more common with automobiles. Titled to an LLC, but the named insured is Joe Smith. The policy doesn't really give Joe the protection that he thinks it does because Joe doesn't own the car.

*note: not every insurer requires the owner to be the named insured...but many do.

My point is that you really want to have a really, really good reason for an LLC.

25 years ago here in town a guy had an LLC for some rental property rented to college students. He maintained it, but his lawyer told him to put the deeds in the name of an LLC. One winter morning none of the kids from one house show up for classes and when their friends checked on them found them all dead from CO poisoning. Sure, the LLC had liability insurance. But this guy personally was responsible for maintaining the property...and he had nothing.
 
First, you form the LLC.
Then you submit the registration and bill of sale change to the FAA in Joklahoma city. You'll need the signatures of all the existing owners as well as providing the information of the LLC membership so that they can determine it is owned by a US citizen or permanent resident. They can be rather picky in getting all the forms right.

Some states like California are royal pains with regard to LLCs (you have to pay the minimum $850 or so tax just to keep it alive). Other states have very marginal fees and other requirements (my Virginia LLC only requires an annual $50 fee and to list a valid Virginia registered agent. My stepson maintains that for me now that I'm in NC.
 
Ok, been busy at work so I haven't had time to really generate a response. But wanted to get back to those who were interested.

Sam D was correct when he said people claim all sorts of things on their returns. Some do. And they get away with it, until they don't (until they are audited.)

LLC's are separate legal entities of the state. As I am not an attorney, I will not comment on any liability protection you may or may not have by creating one. As alluded to by others, each state may have differing taxation of an LLC. For Federal Tax purposes, however, the IRS does not have a section of the Internal Revenue Code pertaining to LLC's. You get to elect how you want to be taxed and then you follow those rules. For a single member LLC, you are a "disregarded entity" by default in the eyes of the IRS. A single member LLC can elect to be taxed as a Corporation and/or taxed as an S Corporation. Multi-member LLC's are taxed as partnerships by default but can elect to be taxed as a Corporation and/or taxed as an S Corporation.

As far as being able to write off your expenses...you have to have a bona fide business. There are multiple factors taken into consideration when determining if you have a business. One of these factors is a profit motive. The IRS will presume profit motive exists if you have a profit in 3 out of 5 years. It is a very easy way to prove a profit motive, but it is not the only way and it is not a requirement. I've had many clients ask me about that "requirement" many times over the years as it is a very common misconception.

If you do rise to the level of having a business, you may write off "ordinary and necessary" business expenses. An IRS agent's definition of ordinary and necessary can be quite different depending on the agent. I've had a number of discussions on this topic with different agents. Many see it my way, but I've had a few very stubborn agents that I've eventually had to agree to disagree with as my client didn't want to take the issue any further.

Gerhardt mentioned insurance coverage above. He is correct in that you want to make sure the policy is an LLC policy, not your policy. I will say again, an LLC is a separate legal entity. Treat it as such. The assets of the LLC need to be purchased by the LLC or transferred to it. Liabilities (loans) need to be taken out by the LLC or transferred to it. The assets are not yours. You may own part/all of the entity that owns that asset, but you need to understand that it is no longer yours. You wouldn't have owner insurance coverage on somebody else's plane, don't do it in this circumstance either.
 
Timbeck2 said:
Asking for a friend because if you guys found out it was really me, you'd call me names and such. Anyway, my airplane is registered in my name. At least two friends of mine have registered their under an LLC. How, specifically, does one go about doing this when its already registered as such?

What steps do I, um...my friend need to take and how and what can one write off when the tax man cometh?
Click to expand...

I made mine online, for my basic needs that’s really all that was needed.
 
I have an LLC that owns my plane for 2 reasons: 1, it is owned with a partner. 2, it is leased out to renters and students at a flight school. The LLC shields me personally from liability if any pilot other than me flying the plane causes a problem.

If you were using the plane for your own business travel it may also make sense but talk to an aviation specialist attorney.
 
Ben2k9 said:
The LLC shields me personally from liability if any pilot other than me flying the plane causes a problem.
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You sure about that?

I have mine for tax reasons and so if some jackwagon runs my international 14” N number he won’t get my name or address.
 
Ben2k9 said:
Better yet, I can just take legal advice from random dudes on the internet!
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Or trust a ambulance chaser

A LLC is resistant to litigation as a T-shirt resists +P+ rounds
 
JD318 said:
Ok, been busy at work so I haven't had time to really generate a response. But wanted to get back to those who were interested.

Sam D was correct when he said people claim all sorts of things on their returns. Some do. And they get away with it, until they don't (until they are audited.)

LLC's are separate legal entities of the state. As I am not an attorney, I will not comment on any liability protection you may or may not have by creating one. As alluded to by others, each state may have differing taxation of an LLC. For Federal Tax purposes, however, the IRS does not have a section of the Internal Revenue Code pertaining to LLC's. You get to elect how you want to be taxed and then you follow those rules. For a single member LLC, you are a "disregarded entity" by default in the eyes of the IRS. A single member LLC can elect to be taxed as a Corporation and/or taxed as an S Corporation. Multi-member LLC's are taxed as partnerships by default but can elect to be taxed as a Corporation and/or taxed as an S Corporation.

As far as being able to write off your expenses...you have to have a bona fide business. There are multiple factors taken into consideration when determining if you have a business. One of these factors is a profit motive. The IRS will presume profit motive exists if you have a profit in 3 out of 5 years. It is a very easy way to prove a profit motive, but it is not the only way and it is not a requirement. I've had many clients ask me about that "requirement" many times over the years as it is a very common misconception.

If you do rise to the level of having a business, you may write off "ordinary and necessary" business expenses. An IRS agent's definition of ordinary and necessary can be quite different depending on the agent. I've had a number of discussions on this topic with different agents. Many see it my way, but I've had a few very stubborn agents that I've eventually had to agree to disagree with as my client didn't want to take the issue any further.

Gerhardt mentioned insurance coverage above. He is correct in that you want to make sure the policy is an LLC policy, not your policy. I will say again, an LLC is a separate legal entity. Treat it as such. The assets of the LLC need to be purchased by the LLC or transferred to it. Liabilities (loans) need to be taken out by the LLC or transferred to it. The assets are not yours. You may own part/all of the entity that owns that asset, but you need to understand that it is no longer yours. You wouldn't have owner insurance coverage on somebody else's plane, don't do it in this circumstance either.
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A well thought out response here. Finally someone articulates the LLC issues in an accurate and easy to read way.

I’ll add that I’m not sure how renting the plane to yourself makes sense as you would have to show income to the LLC (no matter the tax form it takes) for each dollar of rent paid. You don’t get a deduction for paying the rent as an individual, so that bit just increases taxable income. The depreciation gets recaptured on a sale, unless you sell the units of the LLC. Although, if it was disregarded and you sold the units to two people, you would create a partnership. More weirdness there.

The privacy reason may hold water if your state doesn’t make the members’ info public. I know Texas puts the info online. State law may make the indirect tax treatment favorable for an LLC, but that’s not what I do for a living. Best to find someone (like @JD318 ) who knows this stuff and does it for a living so you can pay for a little of his time.
 
James331 said:
Or trust a ambulance chaser
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The term "ambulance chaser" refers to a plaintiffs' lawyer. He was talking to someone for advice about defending his assets. So, he wasn't speaking to an ambulance chaser.
 
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