Presentation on theme: "Tax Planning for Aircraft Owners By Daniel Cheung, CPA Aviation Tax Consultants, LLC Columbus, Indiana Arizona Aircraft Expo Scottsdale, Arizona November."— Presentation transcript:
Tax Planning for Aircraft Owners By Daniel Cheung, CPA Aviation Tax Consultants, LLC Columbus, Indiana Arizona Aircraft Expo Scottsdale, Arizona November 14, 2014
Income Tax Planning Sales / Use Tax Planning FAA Regulations Compliance Outside CPA for the aircraft ATC offers:
Business Owner Self Employed Individual Aircraft Leasing - Flight School / Flying Club / Charter Companies (Air Taxi) Key - Business Justification Who Can Write Off an Aircraft?
Ideal fact situations: A doctor owns a medical practice in an S corporation, 100% shareholder Visit multiple offices and hospitals to see patients, attend medical seminars A business aircraft is justified to facilitate business travels Medical practice revenues will justify a business aircraft Who Can Write Off an Aircraft?
The aircraft is a business tool in a profitable business We do not want to start an aircraft business, we have a profitable medical, engineering, consulting business, utilizing a business aircraft It takes significant revenues to justify an aircraft – starting from scratch is extremely difficult
Income Tax Benefits: Depreciation Operating Expenses become deductible Deferral of federal and state income taxes
MACRS – Modified Accelerated Cost Recovery System, 5 year depreciable live Section 179 Expensing, $500,000 in 2013 Bonus Depreciation, 50% in 2013 2014 / 2015??? What is depreciation?
Depreciation Schedule – 5 year life Half-year convention Half-year deduction in years 1 & 6 Purchase by Sept. 30 52% depreciation in first two tax years 71% depreciation in first three tax years Year 120.00% Year 232.00% Year 319.20% Year 411.52% Year 511.52% Year 65.76% Traditional MACRS Depreciation Schedule: Purchase by September 30th
Mid Quarter Convention 4th quarter purchase (October 1, 2014) Applies when 40% of assets are purchased in 4 th quarter Less first year MACRS depreciation (5%) Especially important for used aircraft No proration for bonus and Sec 179 in 4th quarter (if renewed) Carefully manage business vs personal use
Depreciation Schedule – 5 year life Mid-quarter convention Purchase after Sept. 30 and over 40% of all assets acquired 43% depreciation in first two tax years 66% depreciation in first three tax years Year 15.00% Year 238.00% Year 322.80% Year 413.70% Year 510.90% Year 69.60% Purchase after September 30th:
Part 91 UseDepreciation Expense Tax Savings (45% tax rate) Year 120.00%200,00090,000 Year 232.00%320,000144,000 Year 319.20%192,00086,400 Year 411.52%115,20051,840 Year 511.52%115,20051,840 Year 65.76%57,60025,920 Example: Purchase of aircraft at $1,000,000 before September 30:
Part 91 UseDepreciation Expense Tax Savings (45% tax rate) Year 15.00%50,00022,500 Year 238.00%380,000171,000 Year 322.80%228,000102,600 Year 413.70%137,00061,650 Year 510.90%109,00049,050 Year 69.60%96,00043,200 Example: Purchase of aircraft at $1,000,000, after September 30:
Section 179 Expensing - $500,000 for new or used aircraft Phase out begins at $2,000,000 Dollar for dollar reduction above $2,000,000 Complete phased out - $2,500,000 Valid for 2013 purchase of new or used aircraft
General Income Tax Issues Trade In Like-kind Exchange – Section 1031 Avoid recapture of depreciation on sale of current plane Recapture is taxed as ordinary income Related Party Rental Limitation on utilizing accelerated depreciation Personal Use Proration based on seat hour / mile calculation
Partnership / multiple buyers One LLC with multiple members Business use determination One partnership tax return filed Multiple LLC’s co-owning one aircraft More work initially More beneficial for income tax purpose
Sales and Use Tax FAQ: Can I set up a Delaware / Montana LLC to buy the plane and not pay sales tax? Answer: Yes, sales tax is not due to Delaware / Montana, but you can bring the plane home to Arizona and pay use tax.
Sales and Use Tax enforcement FAA registration information is forwarded to the state department of revenue Airport hangar audit, listing of tail numbers Aircraft registration
Deferral of Sales and Use Tax Exemptions are available California – Interstate Commerce Arizona – Rental & Leasing Exemption, Occasional Sale Exemption Planning is critical to claim any exemption
Is Bonus Depreciation Still Available? Status for bonus depreciation in 2014: On 7/11/2014, the House of Representatives passed HR.4718 that amends the IRC to modify and make permanent 50% bonus depreciation Senate’s version of the bill is a 2-year extension White House says the President will veto a permanent extension bill There will be negotiation, likely after the November election Will the final bill be retroactive? Will there be a bill?
John 07/16/14 3:58 PM Daniel, this is John at Cessna. Do you think Congress and Obama will pass and sign the extension of Bonus Depreciation? I have heard favorable reports lately. Thanks. Me 07/16/14 4:04 PM It passed the House, making bonus permanent, but Democrats in Senate and POTUS will not agree to it. Bill in Senate says 2 year extension but no date has been set for a vote...it may not happen till after November elections. John 07/16/14 4:08 PM Ok. I had hoped it was closer to passage. Thanks for the quick response. Me 07/16/14 4:09 PM No problem. If you are on LinkedIn I post regular Foxnews-style reporting... John 07/16/14 4:09 PM Are your legs as good as Megan Kelly? Me 07/16/14 4:11 PM Well, people comment about my calf regularly... John 07/16/14 4:12 PM Good to know. Me 07/16/14 4:15 PM More info than you need to know... John 07/16/14 4:17 PM I'll keep your secret.... Is Bonus Depreciation Still Available?
An initial interview to discuss some general background information, how the aircraft will be used, etc. Review income tax returns Formulate the initial plan Discuss the plan with client and advisors (CPA, Attorney, spouse, etc.) Implement the plan: entity setup, documentation creation, sales tax compliance, etc. Continual, ongoing monitoring during the three-year engagement period. What is the engagement process?
Contact information www.aviationtaxconsultants.com Office 800-342-9589 Daniel Cheung 317-716-3388 (cell) email@example.com Fred McCarter 812-371-5322 (cell) firstname.lastname@example.org