Business registered Airplane

[evapilotaz]

I seen airplanes registered to businesses and these businesses are not even Aviation type businesses.
What is the reason to register an airplane to a business and not the actual airplane owner?

The reason I asked because I am now a business owner and wondering when I decide to purchase an airplane If I should register it to my business.

 

[flyingron]

Using a corporation or an LLC provides a layer of information hiding. If there are multiple people operating the plane then a corporation may provide a small amount of liability protection. Of course, registering it to your business, makes your business liable to claims made on the operation on the aircraft and vice versa.

 

[James331]

Taxes and privacy.

Mine is registered to a LLC with a PO box address and FAA source blocked tail number.

Keeps the government from stealing more of my hard earned money and keeps the busy body's away to a point.


*I should add the plane is always under 100hr inspections and I'm a ATP and work in the aviation industry, the plane does do some photography work and on occasion advanced training for folk$.

 

[flyingron]

You've lost me. How does corporate (or LLC) ownership DECREASE taxes. Texas must be an odd state.

 

[tuwood]

You've lost me. How does corporate (or LLC) ownership DECREASE taxes. Texas must be an odd state.

I'm not a tax attorney by any means, but here's my understanding.

Personal purchase:
Buy $1M plane
All money spent on plane is post tax, so you have to make $2M to buy the $1M plane (after taxes)
Pay $70k Sales/Use tax on plane
Most expensive way to buy a plane

Direct Business Purchase by your normal business:
Buy $1M plane
Depreciate business use of plane which makes business use amount "tax deductable".
Pay sales/use tax $70k
Any personal use is allowable but not deductible and you also have potential business liability and insurance issues.

Create separate LLC just for airplane:
Buy $1M plane
Rent it dry rate to your business and you personally
depreciate 100% of usage of plane within LLC because it's all "business"
No sales/use tax because it's used 100% for resale within the LLC
Business rental is deductible for your business
Personal rental is paid for with after tax dollars.
Set rental rate to just enough to make money and cover maintenance. Can't use it for a tax loss write off business.

There are companies out there such as Aviation Tax Consultants who assist you with structuring the most optimal tax situation for your purchase. I'm about a year away from buying my plane, but I'm almost certain to be putting it into its own LLC for tax purposes and it will save me a ton of money.

 

[James331]

Just depreciating the plane, it's used for business, it's under 100hr inspections, has its own website and services offered, owned by a ATP, etc, all 100% legal so the IRS can suck it

 

[tuwood]

I would be interested to see if someone actually survived an IRS audit of a single member LLC leasing an airplane to that member for personal use. This sounds too good to be true.

I think that part is fairly easy because the personal use money is "after tax" money. Meaning I have to pay myself from the business and send half of it to the IRS. Then I'm paying for the airplane use.
It's really no different than the rental I'm doing today where I take my "after tax" money and send it to the flight school where they have the plane on lease back. They only have to pay taxes if there's a profit to the business as a whole.

 

[tuwood]

so the IRS can suck it

You can say that again.

 

[evapilotaz]

Thank you for the reply.

So the business is a Registered Partnership and not a LLC.
I wonder If I can purchase the airplane under the business name and any associated expense can be a tax write off.

 

[flyingron]

The IRS doesn't treat airplanes much different than cars. If you can make an argument that it is a reasonable and customary expense of the business you can do so. I'm failing to see how there's a significant tax advantage to corporate ownership. It's the use that qualifies you for tax preference.

 

[tuwood]

The IRS doesn't treat airplanes much different than cars. If you can make an argument that it is a reasonable and customary expense of the business you can do so. I'm failing to see how there's a significant tax advantage to corporate ownership. It's the use that qualifies you for tax preference.

If the use is 100% personal then you are correct because the personal use would not be deductible.

 

[John221us]

I'm not a tax attorney by any means, but here's my understanding.

Personal purchase:
Buy $1M plane
All money spent on plane is post tax, so you have to make $2M to buy the $1M plane (after taxes)
Pay $70k Sales/Use tax on plane
Most expensive way to buy a plane

Direct Business Purchase by your normal business:
Buy $1M plane
Depreciate business use of plane which makes business use amount "tax deductable".
Pay sales/use tax $70k
Any personal use is allowable but not deductible and you also have potential business liability and insurance issues.

Create separate LLC just for airplane:
Buy $1M plane
Rent it dry rate to your business and you personally
depreciate 100% of usage of plane within LLC because it's all "business"
No sales/use tax because it's used 100% for resale within the LLC
Business rental is deductible for your business
Personal rental is paid for with after tax dollars.
Set rental rate to just enough to make money and cover maintenance. Can't use it for a tax loss write off business.

There are companies out there such as Aviation Tax Consultants who assist you with structuring the most optimal tax situation for your purchase. I'm about a year away from buying my plane, but I'm almost certain to be putting it into its own LLC for tax purposes and it will save me a ton of money.

I am not seeing how an LLC would escape sales/use tax, even if they are leasing time back on it. There are some states that do not charge sales tax and often the transaction can occur in one of those to avoid the tax under certain conditions, but each state has rules you need to follow to bring it back into your state (such as flying it over 50% out of state for 6 months and proving you have a business requirement to be out of state).

Edit: Also, you can depreciate a plane, but often the depreciation is recaptured when you go to sell the plane and the business is then on the hook, unless you truly sell the plane for zero. This is why there are many planes sitting out there not selling right now; because they were fully depreciated and the owner would be on the hook for a significant amount of recaptured depreciation, therefore, they ask more than the plane is worth, hoping someone will step up and help them pay the taxes. If you depreciate a $1M plane to zero and then 7 years later sell it for $600K, your tax liability could be up to $300K. But, lets say you borrowed to buy the plane (maybe a 20 or 30 year note) and still owe $500K or more. That means you would have to come out of pocket $200K to sell the plane.

 

[James331]

What if you just sold the plane as a LLC, so you didn't actually sell the plane, you sold the LLC?

 

[tuwood]

I am not seeing how an LLC would escape sales/use tax, even if they are leasing time back on it. There are some states that do not charge sales tax and often the transaction can occur in one of those to avoid the tax under certain conditions, but each state has rules you need to follow to bring it back into your state (such as flying it over 50% out of state for 6 months and proving you have a business requirement to be out of state).

Edit: Also, you can depreciate a plane, but often the depreciation is recaptured when you go to sell the plane and the business is then on the hook, unless you truly sell the plane for zero. This is why there are many planes sitting out there not selling right now; because they were fully depreciated and the owner would be on the hook for a significant amount of recaptured depreciation, therefore, they ask more than the plane is worth, hoping someone will step up and help them pay the taxes. If you depreciate a $1M plane to zero and then 7 years later sell it for $600K, your tax liability could be up to $300K. But, lets say you borrowed to buy the plane (maybe a 20 or 30 year note) and still owe $500K or more. That means you would have to come out of pocket $200K to sell the plane.

For sure, I don't know all the info about sales tax and it's very dependent on what state you live in. Next year when I start shopping for my plane I'll be hiring an Aviation tax consultant to aid me in the structure to make it as optimal for my situation as I can.
I had researched (on my own) a bit several months ago and read an article about rental planes being tax exempt for sales tax because you charge sales tax on the hourly fee or something like that. Kind of like buying a rental car fleet to rent to people. No sales tax on the purchase, but customer pays sales tax on revenue.

Definitely have to be careful with the depreciation if you plan to sell within a few years.

 

[flyingron]

If the use is 100% personal then you are correct because the personal use would not be deductible.

Personal use isn't deductible whether it's owned personally or by a business.
Business use is deductible whether it's owned personally or by a business.
No matter how you slice it...ownership, P&L, depreciation, I'm failing to see how a corporation owning the aircraft makes much of a tax difference as you espouse.