"Mileage deduction" for business use of a personal airplane

[cmmguy]

Hi... newcomer and I hope this is in the right forum and appropriate for this place. It is a boring question but maybe some have some insight.

Currently I do not have an airplane, but I travel a alot. I have a small consulting business and most trips are in the car or commercial but many of those trips could be done in a small private airplane and in one day instead of 3 since the travel time, customer visit and return could all be done in one day.

With my car I use standard mileage rates because it is the easiest and reimbursment is clean and simple for tax purposes. The IRS has standard mileage rates for cars... no problem there. If I started using a personally owned private airplane, I would like to do something similar instead of calculating all the depreciation, gas costs, maintenance costs, etc... then try to differentiate personal use from business use and the headaches associated with that.

Has anyone done this? I think that I would calcuate the total cost of owning the plane on a per hour basis then reimbursing myself for the hours that I log for business use. I would suppose that I would have to do a final reconciliation at years end to look at the total costs relative to actual hours flown that year but for interim purposes, reimbursement would be close.

Does this idea have merit or is it a lost cause? I would like to use a plane but not get bogged down with the minutia of expenses for each and every trip... I would like to write down the total hobbs time for a trip and reimburse myself.

Or would a better idea be to own it personally and rent the plane to the business for business trips at a proper rental cost?

Thanks

 

[poadeleted20]

The IRS does not permit any "standard" mileage rate for business use of aircraft. The amount claimed as a deduction must be supported by IRS-acceptable documentation of all costs. You can confirm this with the IRS, AOPA's Legal folks, or any tax professional (I checked with all of them, including two different tax pros). The course you plan (totaling all the costs and all the flying for the year and computing a cost per hour/mile) is the only legal method other than deducting only the direct cost (fuel, oil, landing fees, etc) of the flight -- and you'll need accurate records of all those costs and all that flying to deduct anything beyond the direct costs.

You may hear about the GSA's standard mileage reimbursement rate for government employees and contractors using private aircraft. That rate is legal only for travel expense reimbursement. When you file your taxes, you will have to compute the actual cost of the flight and then see if what you were reimbursed was the same, more, or less than the actual cost. If more, you pay tax on the excess. If less, you deduct the shortage. If the same, you probably do well at roulette.

 

[cmmguy]

Thanks for the quick reply... I was afraid of that. I understand why there isnt a "standard" rate because of differences in airplanes. I guess renting it would present the same issues.

 

[poadeleted20]

Thanks for the quick reply... I was afraid of that. I understand why there isnt a "standard" rate because of differences in airplanes. I guess renting it would present the same issues.

Renting is easy -- you deduct whatever the rental bill is plus any landing/parking/handling fees for which you have receipts. It's only when it's your own plane that it's complicated.

BTW, for charitable flights, the IRS permits deduction only of direct expenses -- no hangar, insurance, depreciation, etc.

 

[cmmguy]

Renting is easy -- you deduct whatever the rental bill is plus any landing/parking/handling fees for which you have receipts. It's only when it's your own plane that it's complicated.

BTW, for charitable flights, the IRS permits deduction only of direct expenses -- no hangar, insurance, depreciation, etc.

I understand a straight rental, but I was thinking renting the privately owned plane to the business. Yet, I see that being an even more complicated proposition.

 

[EdFred]

The course you plan (totaling all the costs and all the flying for the year and computing a cost per hour/mile) is the only legal method other than deducting only the direct cost (fuel, oil, landing fees, etc) of the flight -- and you'll need accurate records of all those costs and all that flying to deduct anything beyond the direct costs.

This is what I do. I have one credit card that anything airplane related goes on, and absolutely nothing else. Then I just keep a copy of the checks I write and divide by the number of hours once I hit Dec 31.

 

[jbarrass]

Our accountable plan reimburses employees (including the owner) per the GSA authorized rates. Works well and we've never had a problem. Been through many audits and the IRS has always recognized it as a reasonable approach. Check with your accountant, apparently there seem to be some that think GSA rates are not normal and reasonable but I've never ran into it.

 

[poadeleted20]

I understand a straight rental, but I was thinking renting the privately owned plane to the business. Yet, I see that being an even more complicated proposition.

It is. You'd pretty much have to set up a corporate entity to own the plane, and then there are tax and other legal issues. It's really not worth it if you're just renting to yourself (BTDT -- started with a leaseback, then kept the plane after that terminated).

 

[poadeleted20]

Our accountable plan reimburses employees (including the owner) per the GSA authorized rates. Works well and we've never had a problem. Been through many audits and the IRS has always recognized it as a reasonable approach. Check with your accountant, apparently there seem to be some that think GSA rates are not normal and reasonable but I've never ran into it.

There is no problem for the employer here, as the IRS doesn't much care what the employer reimburses the employees, only that the company doesn't try to deduct more than they paid out. However, the employees cannot use that rate when doing their own taxes -- they must show actual cost, and if that's more than the direct cost of the flight, that takes a lot of recordkeeping. That's all confirmed with IRS, AOPA Legal, and a couple of tax professionals. If you don't believe me, ask the IRS yourself (or have your own tax pro ask them for you).

You want to do otherwise, mighty fine, but it will not stand up on an IRS audit of the employee's personal tax return.

 

[AggieMike88]

Renting is easy -- you deduct whatever the rental bill is plus any landing/parking/handling fees for which you have receipts. It's only when it's your own plane that it's complicated.

...and if you are part of a equity club?

My example: I'm a 1/16th share holder of a corporation that in turn owns two aircraft (www.metroflyersclub.com). Per your example, what category do I fall into? Renter or Owner?

 

[wabower]

You have no idea what the IRS will or won't accept during an audit.

Auditors come in all different stripes and it's luck of the draw. I've been audited more than a dozen times, all but one have been during aircraft write off years. Plane owner clients that I represent have been audited far more times (in the aggregate) and very few have encountered problems. All of the problems have resulted in adjustments, mostly very modest, to their returns rather than disallowances.

All of us have presented well-organized record, logs and reasonable approaches to the deductions claimed. In my case I used an estimated expense factor (4X fuel actual fuel cost) for billing purposes, included it in reportable Schedule C income and deducted the actual expenses incurred, including depreciation. I have never been charged with an additional penny of tax based on airplane ownership and usage.

This method was recommended by the head of the Deloitte Touche tax practice in KC who also prepared the return for two guys named Bloch who were also in the tax return business.

If your CPA has developed a reasonable method of accounting for these expenses, I wouldn't spend a lot of time worrying about an audit.

There is no problem for the employer here, as the IRS doesn't much care what the employer reimburses the employees, only that the company doesn't try to deduct more than they paid out. However, the employees cannot use that rate when doing their own taxes -- they must show actual cost, and if that's more than the direct cost of the flight, that takes a lot of recordkeeping. That's all confirmed with IRS, AOPA Legal, and a couple of tax professionals. If you don't believe me, ask the IRS yourself (or have your own tax pro ask them for you).

You want to do otherwise, mighty fine, but it will not stand up on an IRS audit of the employee's personal tax return.

 

[jhausch]

I used an estimated expense factor (4X fuel actual fuel cost) for billing purposes, included it in reportable Schedule C income and deducted the actual expenses incurred, including depreciation. I have never been charged with an additional penny of tax based on airplane ownership and usage.

You lost me....(not hard to do) I have just a couple of questions...

Was there a mix of business and personal use?

By "billing purposes" do you mean a travel rate to external clients our just a transaction between "Wabower inc" and W.B., citizen-taxpayer?

Is the purpose of the estimated number so you can reconcile things monthly?

Did your do the "businesses hours for the year / total hours for the year" to determine percentage of depreciation deductible against business income?

Did you do the "total expenses for the year (incl depr) / total hours for the year" to reconcile against estimated numbers at year end?

Sorry for all the questions, just trying to get smarter (or at least fill in new knowledge as the older knowledge slowly leaks out)

 

[timwinters]

Why not just put the plane in the company's name and expense everything? Then, reimburse the company for personal flights at the going rental rate.

That's what I did when I had my business and it passed muster with my accountant and three various audits.

 

[JimNtexas]

...and if you are part of a equity club?

My example: I'm a 1/16th share holder of a corporation that in turn owns two aircraft (www.metroflyersclub.com). Per your example, what category do I fall into? Renter or Owner?

I"m in a 3 aircraft equity club also. My club bills a flat monthly rate for fixed costs and an hourly rate for variable costs. This is actually perfect for charitable travel deduction purposes and not at all complicated. Just deduct the hourly rate and any directly associated miscellaneous expenses.

I don't fly a lot for business, but when I have I use the hourly rate as my deduction and don't worry about figuring what portion of the fixed costs could be attributed to the business flight.

I'm sure your club, like mine, files the appropriate tax return for its entity.

This is a really simple situation.

 

[wabower]

IRS rules changed big-time in 2004 as part of the Jobs Creation Act. Personal use of business aircraft is extremely punitive now. The rules were extremely generous prior to 2004 and many owners and advisors are unaware of the changes.

Why not just put the plane in the company's name and expense everything? Then, reimburse the company for personal flights at the going rental rate.

That's what I did when I had my business and it passed muster with my accountant and three various audits.

 

[wsuffa]

IRS rules changed big-time in 2004 as part of the Jobs Creation Act. Personal use of business aircraft is extremely punitive now. The rules were extremely generous prior to 2004 and many owners and advisors are unaware of the changes.

Yep, it made for a LOT of business for corporate security consultants to render opinions as to why it was critical for security purposes for (named corporate exec) to travel by private plane rather than the airlines. So many lives were in danger...

 

[wabower]

And the tests for sustaining that deduction are a bit more difficult that some might assume. The former CEO of the local cosmetics-manufacturing giant can provide all the details, if you can convince him to share them.

Yep, it made for a LOT of business for corporate security consultants to render opinions as to why it was critical for security purposes for (named corporate exec) to travel by private plane rather than the airlines. So many lives were in danger...

 

[wsuffa]

And the tests for sustaining that deduction are a bit more difficult that some might assume. The former CEO of the local cosmetics-manufacturing giant can provide all the details, if you can convince him to share them.

BTDT - no need for his details. When I was at that corporation down in San Antone, I was the one who had to manage the consultant who was retained to do the study.....