Business use question (red board x-post)

[PilotAlan]

Hi all, a question (and yes, I did search),

I have an opportunity to move to a tech company doing business development and project support. The principals are very positive on my having a plane, as I would be covering everything from Colorado west to the Pacific Ocean.

This is not a request for tax advice, I'm just starting to look at how plane usage would work.
I already own the plane, how do you handle aircraft expenses for business? If I am reimbursed by the company, is it straight operating costs (gas, oil, etc)?

Could I put the plane in an LLC and have the company rent its use and include annual, engine reserve, hangar, etc (I am pretty sure that would then require 100hr inspections, etc). I would imagine then that I would rent it from the LLC for personal use.

Again, I am looking for what people are currently doing, and how well it works out.

 

[dmccormack]

Critical hurdle to clear is the liability exposure.

Many (most?) corporations don't want their deep pockets exposed. And it doesn't matter what waiver you've signed or insurance you have -- if you wreck while flying for business, rest assured the business will be named in the suit.

 

[PilotAlan]

Critical hurdle to clear is the liability exposure.

Many (most?) corporations don't want their deep pockets exposed. And it doesn't matter what waiver you've signed or insurance you have -- if you wreck while flying for business, rest assured the business will be named in the suit.

I understand that. The principals have experience with using GA in prior companies, and the fact that I have GA transportation is a positive.
So, for these purposes, let's just assume that GA transportation will occur. How are you handling it?

 

[Ken Ibold]

I once worked for a company that allowed me to use my aircraft on trips if it made business sense -- which it often did if two of us were going or if it allowed us to skip a hotel night or something. I owned the aircraft in a Sub S corp (and that was the corp's only asset) and I paid the corp an hourly "rental" rate for my personal use. The company also paid that hourly rental rate as reimbursement. I did not pay the corp for flights solely associated with the operation of the corp, such as post maintenance test flights etc. My accountant was OK with it. A friend who was a local FSDO guy said it passed the sniff test. That was some time ago, though. Perhaps the rules have changed since then.

The hourly rate included reserves, fixed costs and operating costs.

 

[wsuffa]

Some companies I've worked for have a policy of reimbursing direct costs (gas, oil, FBO charges, etc) up to the value of a coach airline ticket.

 

[timwinters]

The GSA, on their "Privately Owned Vehicle (POV) Mileage Reimbursement Rates" web page, takes the cost per mile approach in lieu of of cost per hour. I use this page in setting my company's reimbursement rates.

http://www.gsa.gov/portal/content/100715

 

[dmccormack]

I understand that. The principals have experience with using GA in prior companies, and the fact that I have GA transportation is a positive.
So, for these purposes, let's just assume that GA transportation will occur. How are you handling it?

That's great!!!

I'm planning my first flight in September. I'll bill mileage as if I drove there and back (still less than airfare).

 

[EdFred]

I know exactly what the plane costs to operate per year to the penny. That includes hangar, insurance, necessary maintenance and parts, along with fuel, oil, and fees. Anytime I use the plane for business flights I use my hourly cost.

 

[poadeleted20]

I already own the plane, how do you handle aircraft expenses for business?

I keep track of every aircraft expense over the year (business and personal), then divide by the number of hours the plane flew that year, and use that number as my hourly cost for the next year. That provides essentially the same result as the LLC method (see Ken's post above and more below), but saves several hundred up front and every year in the costs to set up and maintain an LLC, not to mention the hassle of all the documentation necessary to operate and LLC.

If I am reimbursed by the company, is it straight operating costs (gas, oil, etc)?

That is entirely up to the company. However, the IRS will be interested in how your reimbursement compares to the actual cost of the flight, and that depends on whether or not you keep track of all direct and indirect costs for all flying for the year in an IRS-acceptable form. If you have a fully-costed hourly rate, you can use that number as your cost for that comparison, just like using rental cost. If not, you can only use the direct cost of the flight, which means fuel, oil, and airport expenses (landing/ramp/handling fees, overnight tiedown, etc). Either way, any excess reimbursement will have to be declared as taxable income, and any shortage may be deducted as an unreimbursed business expense.

Could I put the plane in an LLC and have the company rent its use and include annual, engine reserve, hangar, etc (I am pretty sure that would then require 100hr inspections, etc). I would imagine then that I would rent it from the LLC for personal use.

Since you won't be carrying passengers for hire or giving flight training in that aircraft, you won't need 100-hour inspections. However, you are correct that you would have to rent the plane from the LLC and pay the LLC at the same rate for all flying you do -- but that's an IRS issue, not an FAA issue.

For all intents and purposes, the only reason to put your own plane in an LLC is for liability protection if it's flown by others or leased out or something like that. If you're the only person involved in its operation, an LLC really does nothing for you but make ownership more expensive and complicated.

 

[poadeleted20]

The GSA, on their "Privately Owned Vehicle (POV) Mileage Reimbursement Rates" web page, takes the cost per mile approach in lieu of of cost per hour. I use this page in setting my company's reimbursement rates.

http://www.gsa.gov/portal/content/100715

That's up to the company for their purposes, but you cannot use that rate for your personal tax purposes, i.e., you cannot use that rate to determine if you were over/under-reimbursed and either owe taxes on excess reimbursement or can deduct the shortage as an unreimbursed business expense -- and that's a comparison you are legally required to make when filing your personal income tax return.

 

[jtheune]

That's up to the company for their purposes, but you cannot use that rate for your personal tax purposes, i.e., you cannot use that rate to determine if you were over/under-reimbursed and either owe taxes on excess reimbursement or can deduct the shortage as an unreimbursed business expense -- and that's a comparison you are legally required to make when filing your personal income tax return.

If that was the case wouldn't everybody who ever got reimbursed for auto mileage have to do the same thing? I've never heard of that requirement before.

 

[poadeleted20]

If that was the case wouldn't everybody who ever got reimbursed for auto mileage have to do the same thing? I've never heard of that requirement before.

The IRS publishes an auto mileage rate which is approved for such use. They do not do the same for aircraft use. Further, you cannot use the GSA aircraft reimbursement rate for tax purposes as you can the IRS auto mileage rate. Even though some private and non-Federal government agencies may accept it for reimbursement of their employees, the one and only purpose of the GSA aircraft reimbursement rate is to set the rate Federal government agencies will pay for use of private aircraft by Federal employees, and even those Federal employees must justify the cost independently for their tax returns. I realize it sounds like left hand/right hand, but that's the way it is, and I've checked this all with the IRS, AOPA Legal, and two independent tax professionals.

 

[PilotAlan]

I keep track of every aircraft expense over the year (business and personal), then divide by the number of hours the plane flew that year, and use that number as my hourly cost for the next year.

I also keep track of every penny spent via financial management software, so that's easy.

That provides essentially the same result as the LLC method (see Ken's post above and more below), but saves several hundred up front and every year in the costs to set up and maintain an LLC, not to mention the hassle of all the documentation necessary to operate and LLC.

Agreed. Not knowing what was being done, I couldn't decide if an LLC was worth it from an IRS protection perspective.

However, the IRS will be interested in how your reimbursement compares to the actual cost of the flight, and that depends on whether or not you keep track of all direct and indirect costs for all flying for the year in an IRS-acceptable form. If you have a fully-costed hourly rate, you can use that number as your cost for that comparison, just like using rental cost. If not, you can only use the direct cost of the flight, which means fuel, oil, and airport expenses (landing/ramp/handling fees, overnight tiedown, etc). Either way, any excess reimbursement will have to be declared as taxable income, and any shortage may be deducted as an unreimbursed business expense.

1 - That's great. Much simpler.

2 - If I'm tracking here, the hourly rate is based on last year's numbers. If at the end of this year, the reimbursed hourly rate for this year (based on last year's numbers) was higher than the recomputed hourly rate (using this year's actual numbers), the excess is taxable.
If the reimbursed hourly rate was lower than the recomputed rate (for any number of reasons, including fuel price increases), the deficit is deductible. And the recomputed numbers become next year's hourly rate.

Since you won't be carrying passengers for hire or giving flight training in that aircraft, you won't need 100-hour inspections. However, you are correct that you would have to rent the plane from the LLC and pay the LLC at the same rate for all flying you do -- but that's an IRS issue, not an FAA issue.

Thanks. I wasn't clear on when the higher maintenance standards kicked in.

For all intents and purposes, the only reason to put your own plane in an LLC is for liability protection if it's flown by others or leased out or something like that. If you're the only person involved in its operation, an LLC really does nothing for you but make ownership more expensive and complicated.

I do perfectly understand the lack of protection of an LLC for my own actions, and I will be the only one flying. I was unsure if an LLC would provide any IRS protections, or presumption of propriety.

Thank you Ron, I very much appreciate your assistance. That helped VERY much.

 

[timwinters]

The IRS publishes an auto mileage rate which is approved for such use. They do not do the same for aircraft use. Further, you cannot use the GSA aircraft reimbursement rate for tax purposes as you can the IRS auto mileage rate. Even though some private and non-Federal government agencies may accept it for reimbursement of their employees, the one and only purpose of the GSA aircraft reimbursement rate is to set the rate Federal government agencies will pay for use of private aircraft by Federal employees, and even those Federal employees must justify the cost independently for their tax returns. I realize it sounds like left hand/right hand, but that's the way it is, and I've checked this all with the IRS, AOPA Legal, and two independent tax professionals.

Whatever, Ron,

All I know is that when I set up my company my accountant told me to use GSA rates for mileage reimbursements. I have done this for 8 years & have been through 4 audits of various types (both state and federal) and no one has ever questioned it.

In the case of my plane it belongs to the company. I reimburse the company the GSA rate for personal use.

On vehicle mileage, it works both ways. I reimburse the company when I use a company vehicle. The company reimburses me when I use one of my vehicles for company use. The GSA rates are used in both directions.

FWIW

A vehicle is a vehicle...which brings up the larger question...

What happens when the "flying cars" hit the market. Do I keep track of every little expense and pro-rate that when flying but reimburse myself on a per mile basis when on the road????

 

[poadeleted20]

All I know is that when I set up my company my accountant told me to use GSA rates for mileage reimbursements.

That's fine for the company, but it has no effect on the issue for you.

I have done this for 8 years & have been through 4 audits of various types (both state and federal) and no one has ever questioned it.

In the case of my plane it belongs to the company. I reimburse the company the GSA rate for personal use.

So what we're talking about here is your reimbursement of the company for the use of the company's plane? Not the company's reimbursement of you for a plane you provide? That's a completely different situation. Since you are deducting on your taxes the actual cost you paid the company for use of their plane, the IRS will be perfectly happy with the situation. However, that doesn't change a thing I said about reimbursements to you by the company for the cost of your plane or one you rented.

On vehicle mileage, it works both ways. I reimburse the company when I use a company vehicle. The company reimburses me when I use one of my vehicles for company use. The GSA rates are used in both directions.

The GSA rate and the IRS rate are the same for auto mileage, and the IRS accepts that rate without further documentation, so there's no issue at all. But again, it's different for privately-owned airplanes.

A vehicle is a vehicle...which brings up the larger question...

Not in the eyes of the IRS.

 

[alaskaflyer]

A vehicle is a vehicle...which brings up the larger question...

Ron speaketh the truth! To the IRS this absolutely isn't true. Had an uncle run through the wringer on this big time. The allowable reimbursement mileage rate for cars is published in federal regulation by the IRS. Good luck finding a similar rate for a-craft in IRS regulations.

It's what? A two step test I believe. Is the a-craft use deductible at all, and is the amount deducted reasonable. Someone more knowledgeable can fill in the regulatory language.

Raw deal, but there it is.