Tax implications of airplane ownership

tiger said:
A constantly loss-making entity set up purely to own a personal airplane would likely fall afoul of the IRS's "hobby loss" rule and "losses" would cease to be deductible.
Click to expand...
Wouldn’t you be paying the corporation for use of the plane and then paying expenses out of the corporation? So there is profit when you pay for use of the plane. Building a maintenance and engine reserve would show profits even better.
 
Logs. Similar to owning a car that is owned by a business... supposed to keep logs of where one goes... picking up the 8 year old at Soccer practice in the LLC-owned $75,000 Tahoe is not a legit expense. The rules are mainly set up for business jets... with 2 pilots on payroll, a hangar, fuel, maintenance costs, owning a private jet is millions per year and therefore a major tax deduction. This is one of the reasons why NetJets and others became so popular. In addition to getting rid of the headaches involved in a Flight Department, which is a business in itself, the deductions are somehow simpler. When I fly to Westhampton Long Island in my personally owned, non-deducted 2 seater plane, stopping in for the best French Toast in America at the airport, I am parked near many Corporate jets. I don't think those jets are there "working"... God bless America.
 
Please stop calling them deductions. They are expenses against income.

Some people get away with borderline stuff. There is no free lunch. Do your taxes the way you want, but be prepared to be wrong at audit time.

<———- CPA

*this post does not contain professional advice, only personal perspective
 
Note, just putting it into a corporation or LLC doesn't automatically enable depreciation. In order to be eligible, it has to be an asset that is used to generate income for the company. Now, if you're flying it around as a reasonable and customary business expense (seeing clients) or you're in the business to rent it out, then yes. Not only can you, but you really have to depreciate it. If you just put it into an LLC for "liability" reasons without a business motive for its use, then no you can't depreciate.

As pointed out as long as you're breaking even or making a profit (and paying taxes), the IRS doesn't much care how you own the plane. If you want to take a loss deduction, then they're going to investigate whether this was a legitimate business or just a hobby.
 
Getting caught lying to the IRS doesn't meet the standard risk/reward ratio... several years ago, a local IGA grocer... nice guy... went on an all expense paid trip for 9 months, courtesy of the IRS. "everyone else does it" is not a solid defense strategy.
 
dans2992 said:
“I don’t recall...” is a common answer. Seriously, how would they prove it?
Click to expand...

As an ethical matter, that doesn’t matter. Beware the slippery slope.

But we’re all adults here, so as AGLyme mentioned, the risk/reward of a tax evasion scheme is something each of us has to weigh for ourselves.
 
AGLyme said:
Getting caught lying to the IRS doesn't meet the standard risk/reward ratio... several years ago, a local IGA grocer... nice guy... went on an all expense paid trip for 9 months, courtesy of the IRS. "everyone else does it" is not a solid defense strategy.
Click to expand...

what did the guy do?
 
He isn't a friend, so I don't know the technical elements of his case. Nonetheless, he took a risk, got caught, and went to jail.
 
Let'sgoflying! said:
In Texas, I know someone who sold the plane to his business, taking it out of the sales tax exemption category, and yup the state found it, made him pay up.
Click to expand...

A business which he owned 100%?
 
Morgan3820 said:
Funny, on the advice of experts I moved ownership of the aircraft to the LLC to make the corporation liable and hopefully remove personal liability.
Click to expand...

LLC will not protect you if you’re the pilot.

If it’s co-owned, then if your partner crash it, then you are protected.
 
dans2992 said:
How does the IRS prove who was in the plane??
Click to expand...

They can track the money, if you rent the plane to yourself, it’s going to be trivial to figure it out unless you paid cash.
I gotta wonder how much you’re really saving after paying CPA, LLC registration, etc
I vaguely remember Warren Buffet got into hot water with IRS regarding aviation expenses.
 
MooneyDriver78 said:
They can track the money, if you rent the plane to yourself, it’s going to be trivial to figure it out unless you paid cash.
I gotta wonder how much you’re really saving after paying CPA, LLC registration, etc
I vaguely remember Warren Buffet got into hot water with IRS regarding aviation expenses.
Click to expand...

But the IRS still wouldn't know if you had 1, 2, 3, or 4 people in the airplane.
 
dans2992 said:
what did the guy do?
Click to expand...
Probably withheld the withholding taxes from the employees and failed to remit them to the government. This is one of the things that the IRS has no tolerance for. You're not supposed to touch that money. If you don't pay your business income taxes, it likely only results in civil action unless you get really egregious.

We had a local bar owner that just failed to pay his taxes. Such isn't too uncommon for failing businesses and the IRS realizes that, but this guy was quite successful. He just figured he had better use of the money (buying boats and such) than the government. They also have little humor for those antics.
 
MooneyDriver78 said:
They can track the money, if you rent the plane to yourself, it’s going to be trivial to figure it out unless you paid cash.
I gotta wonder how much you’re really saving after paying CPA, LLC registration, etc

I greatly appreciate your concern for my wellbeing...
Click to expand...
 
Salty said:
Wouldn’t you be paying the corporation for use of the plane and then paying expenses out of the corporation? So there is profit when you pay for use of the plane. Building a maintenance and engine reserve would show profits even better.
Click to expand...
You could probably do that, but as been pointed out above, profit is not financially useful in a corporation of which you're both the sole owner and customer.

There might still be a liability benefit to placing the airplane in a corporate entity, but I wouldn't even pretend to be qualified on that.
 
Let'sgoflying! said:
You know him, not sure about his % Spike. Sherman, Tx
Click to expand...

Ah.

In Texas, if you know to raise it, a transfer from individual ownership into a corporate entity with identical ownership is a “transfer of convenience,” and should not be taxed. I have, however, had to fight this in the past.
 
SCCutler said:
Ah.

In Texas, if you know to raise it, a transfer from individual ownership into a corporate entity with identical ownership is a “transfer of convenience,” and should not be taxed. I have, however, had to fight this in the past.
Click to expand...

I have a perfect example of how seeking professional advice from a knowledgeable attorney can save you thousands.
I did, he helped, I saved thousands on my last airplane purchase. Without that advice, I would have sent a big check to the seller's state.
Thank you, friendly attorney.
 
You must log in or register to reply here.
Back
Top