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Thread: Airplanes and Taxes

  1. #1

    Join Date
    Nov 2011
    Location
    Missouri
    Posts
    5

    Happy Airplanes and Taxes

    My wife has a home-based business and I'm studying for my CFI. I would like to buy a C150 and use it for some of her travels and to teach others in. I was wondering if anyone else has a similar situation and what they do for taxes. It would be nice to write off legitimate expenses but I'm not sure how to go about that. Do I just include it in my deductions? What about writing off the cost of the aircraft itself. Should I form an LLC and register the plane under it? Any advice would be appreciated.
    Todd Reed
    N63TD (reserved)
    Nexus Mustang
    EAA 1424

  2. #2
    FlyingRon's Avatar
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    Aug 2011
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    CJR / NC26
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    979
    There really isn't a whole lot of difference between a plane and a car in such a situation. A decent tax professional should be able to handle the expenses, depreciation, etc... Back when I was doing lease backs my tax attorney (ok it was my mother) had no problem with it.

  3. #3

    Join Date
    Nov 2011
    Location
    Camas, WA
    Posts
    10

    Airplane business

    You probably need to form a business of some sort. This means getting a business license in your state and perhaps locality. You will need to file tax returns and possibly reports to your local and state governments.

    Depending on your personal financial condition you might want a corporation of some sort. If so, you probably want to consider a subchapter S designation with the IRS.

    In any case, I suggest you find a good book on starting a business (there are hundreds or thousands of these to consider) and also find some professionals you are comfortable working with. These should certainly include an accountant and might include a lawyer.

    As you will learn in your "starting a business" book, you certainly need a detailed business plan. Your book will include a lot of information on this, but there are also thousands of books about producing a business plan. This is the first step you must take to establish your business. It will define what your business is, what it does, who your potential customers are, how much money you need to start your business, and a lot of other very important things.

    Good luck,

    Paul
    Camas, WA

  4. #4

    Join Date
    Nov 2011
    Posts
    2
    Not to shoot down advice from others, but some suggestions may make this more difficult than it needs to be. In any state within the U.S.A you can operate as a sole-proprietor and simply file a Schedule C at tax time, or even a Schedule C-EZ if you are so lucky. Likely, you'll want the full Schedule C. This does not require you to "incorporate" by forming an S-Corp or an LLC or even a C-Corp for that matter. You simply record your gross revenue on one line, and your various "few" expenses on a few other lines. Those expenses with your airplane will be depreciation, finance costs (if any), insurance, hanger rent, fuel (when instructing), and other similar expenses. If you know someone who can explain lease backs well, then that is usually a better tax option, but it adds complexity. Taking this route only requires research on your part, and buying turbo tax every year for your taxes. You'll need to find out the depreciation allowance for an airplane (turbo-tax may have that??).

    If you want to involve your wife then you could form a partnership and file form 1065, but if you were going to go that far, then you might as well do the LLC as it's easier, makes more sense, and just about any tax professional and tax program can help you.

    If you want liability protection from possible lawsuits then an LLC may be the way to go. However, in general that's the purpose of your liability insurance with your C-150. It protects you if you crash into the neighbors house or the hanger/plane that was unlucky to be in your path. However, it doesn't protect you from your students spouse suing you if they crash and die, that's where the LLC may come in handy. Even then the so called "corporate veil" is not that hard to pierce, and most attorney's can find a way.

    Keep it simple, that's the best advise. Keep good records in either Quickbooks or a basic excel spreadsheet.

  5. #5

    Join Date
    Nov 2011
    Location
    Camas, WA
    Posts
    10

    It is not just about federal taxes.

    Depending on where you are conducting your business you will need to collect sales taxes and deliver them to the state and local governments. In many states you will also need to pay business taxes. Similarly, you will certainly be responsible for paying use taxes if you buy anything from another state (like fuel on a cross country trip).

    I strongly urge you to find a good accountant and/or lawyer to help you set up your business so you are in concert with federal, state, and local laws. If you try to save money by "Keeping it simple" you will be likely to face a huge tax bill along with penalties when the state catches up with you.

    Your business plan is the most important part of setting up your business. Without this you may well go through all the motions of being in business but lose money on everything you do. The same fate, or worse, can result from not properly working out your cash flow (a core part of your business plan). Another part of your business plan is to identify who your customers are and how to acquire them.

    You really need to think about what you are doing as more than just a tax exercise.

    Paul
    Camas, WA

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