DaviatorSF
Filing Flight Plan
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- Feb 17, 2021
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DaviatorSF
I wish I’d come across this thread earlier but I’ll still try to answer.
I'm part of a three pilot “partnership” which is in the form of an LLC, so it’s a three member LLC. While some may disagree, I believe this does offer some protection to members B and C if member A does something boneheaded, and vice versa. The LLC has existed for almost 25 years and I’ve been part of it for most of that time.
We collect reserves for engine overhaul and maintenance. So in most years, there is more money coming in than going out. In a year where the maintenance expenses are high, or when you have an engine overhaul, the opposite is true. The other inflows and outflows essentially cancel themselves out (all the money that gets collected for fuel is spent on fuel, etc.) so the “profit” or “loss” is really just a question of whether the reserves grew or diminished in that year.
We do file annual federal and state returns, and essentially all of the member contributions are reported as income, while all of the expenses are obviously deducted. So in most years, there IS some taxable income which flows down to the tax returns of the members via Schedules K-1. In any year where we spend a lot from the reserves, there is a “loss” which results in negative income on the partners' individual returns. So over time, the taxable impact averages to essentially zero, but depending on when someone joins or leaves the LLC, they might have a personal impact that is non-zero.
if there is a better way of doing this I’d love to hear about it, but I do think that you need to treat the LLC like the business entity that it is and account for all of the inflows and outflows. If we were ever to be audited, I’m confident we’d be fine.
The actual dollars involved in a typical year might result in someone paying $100 more in taxes in a typical year, which is a pretty insignificant figure.
I'm part of a three pilot “partnership” which is in the form of an LLC, so it’s a three member LLC. While some may disagree, I believe this does offer some protection to members B and C if member A does something boneheaded, and vice versa. The LLC has existed for almost 25 years and I’ve been part of it for most of that time.
We collect reserves for engine overhaul and maintenance. So in most years, there is more money coming in than going out. In a year where the maintenance expenses are high, or when you have an engine overhaul, the opposite is true. The other inflows and outflows essentially cancel themselves out (all the money that gets collected for fuel is spent on fuel, etc.) so the “profit” or “loss” is really just a question of whether the reserves grew or diminished in that year.
We do file annual federal and state returns, and essentially all of the member contributions are reported as income, while all of the expenses are obviously deducted. So in most years, there IS some taxable income which flows down to the tax returns of the members via Schedules K-1. In any year where we spend a lot from the reserves, there is a “loss” which results in negative income on the partners' individual returns. So over time, the taxable impact averages to essentially zero, but depending on when someone joins or leaves the LLC, they might have a personal impact that is non-zero.
if there is a better way of doing this I’d love to hear about it, but I do think that you need to treat the LLC like the business entity that it is and account for all of the inflows and outflows. If we were ever to be audited, I’m confident we’d be fine.
The actual dollars involved in a typical year might result in someone paying $100 more in taxes in a typical year, which is a pretty insignificant figure.