Income Taxes for Aircraft Used in Business

Index of Topics:

 A Guide for Structuring Ownership and Reporting Income and Deductions for Aircraft Used in Business by Jed Wolcott

• EXECUTIVE OVERVIEW
• GUIDELINES FOR USE OF THIS REPORT
• ESTABLISHING THE GROUNDWORK

What Constitutes Business Use of an Aircraft?
Defining “Incidental” to the Business of the Company.
by Jed Wolcott
The Real Question: Does Owning the Aircraft Make Business Sense? 
Which Costs are Available for “Write Off?”
Conflicts Between IRS and FAA Regulations.
Cash vs. Accrual-Based Accounting. 
The Importance of Internal Documents Agreeing with Each Other. 
Do You Need an Aviation Attorney?

• SELECTING THE TAX OWNERSHIP STRUCTURE

Structures for Owning the Aircraft.
Using Special-Purpose (or Single-Asset) Companies to Own Aircraft.
The Flight-Department Company Dilemma.

• TAX REGULATIONS AND CONFLICTS

Passive Activity Loss Limitations.
At-Risk Limitations.
S-Corporation Shareholder Basis.
Hobby Loss Rules.
Loss Carry-Forward and Carry-Back.

• NON-BUSINESS USE OF BUSINESS AIRCRAFT
• STATE SALES TAX, USE TAX, AND PERSONAL PROPERTY TAXES

Why are these Taxes an Issue?
State Sales Tax.
State Use Tax.
Personal Property Taxes.
Possible Exemptions from Sales and Use Taxes.
Closing Offshore, in Another State, or using a Delaware Corporation.

• DEPRECIATION

Book Depreciation & GAAP.
Tax Depreciation.
What Type of Property is Depreciated?
Capitalize or Expense - the Dilemma.
Section 179 Deductions – Individual Owners.
Section 179 Deduction – Partnerships, LLCs, and S-Corporations.
Aircraft as Listed Property.
MACRS Depreciation – For Most Aircraft Used in Business.
ADS Depreciation for Aircraft Used Less Than 25% for Business.
Determining the First-Year Depreciation Deduction.
Depreciating Improvements and Upgrades.
Bonus Depreciation.
Different Depreciation Rates for Business vs. Charter.
May I Claim Depreciation for My Airplane Used in My Employer’s Business?
Fourth-Quarter Purchases.
Depreciation Restriction on Recently-Formed Entities (Called Short Tax Year).
Depreciation Tables.
Preparing Form 4562 for Reporting Depreciation.
Depreciation Deductions – General Comments.
Depreciation Summary.

• WHAT HAPPENS WHEN I SELL THE AIRCRAFT?

Taxing the Gain or Loss from the Sale of a Business Aircraft.
Tax Free Exchanges (Section 1031).
Trading-In Your Aircraft.
Preparing Form 4797 for Reporting the Sale of a Business Aircraft.

• PRACTICAL EXAMPLES & FILLED-IN TAX RETURNS

Example 1: Individually-Owned Aircraft Used for Business.
Example 2: Single-Member LLC Owns Aircraft Used for Business.