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Andrew Gideon
Guest
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 Posted: Fri May 11, 2007 2:29 am Post subject: Depreciating aircraft parts, dealing with taxes, etc. |
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Most owners, I assume, have corporations which do the actual owning and
which provide a liability firewall. But how are taxes managed?
The issue I think I'm facing is we pay money into the corporation against
future events like overhaul, repainting, etc. These monies add up. But
since this is really just a reserve that's going to be spent in a few
years, I'm loath to have this considered "profit" and thereby become
taxable.
The answer, I'd imagine, is to depreciate those things against which the
reserves are accumulating. For example, if I pay $25/hour into the bucket
for engine reserve, I want to depreciate the engine by $25/hour.
Can one do that? What [very!] little I know about taxes has
calender-based depreciation schedules. Can one have a use-based schedule?
Thanks, and any suggestions, corrections, pointers, or ideas would be
welcome.
- Andrew |
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Matt Barrow
Guest
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| Posted: Fri May 11, 2007 4:14 am Post subject: Re: Depreciating aircraft parts, dealing with taxes, etc. |
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"Andrew Gideon" <ag7337 (AT) gideon (DOT) org> wrote in message
news:pan.2007.05.10.21.29.49.699466 (AT) gideon (DOT) org...
| Quote: |
Most owners, I assume, have corporations which do the actual owning and
which provide a liability firewall. But how are taxes managed?
The issue I think I'm facing is we pay money into the corporation against
future events like overhaul, repainting, etc. These monies add up. But
since this is really just a reserve that's going to be spent in a few
years, I'm loath to have this considered "profit" and thereby become
taxable.
|
IIUC, it should be set up as a reserve/expense account, not as income to the
corporation. The only income to the corporation should be the management
fees (??)
| Quote: |
The answer, I'd imagine, is to depreciate those things against which the
reserves are accumulating. For example, if I pay $25/hour into the bucket
for engine reserve, I want to depreciate the engine by $25/hour.
Can one do that? What [very!] little I know about taxes has
calender-based depreciation schedules. Can one have a use-based schedule?
|
It sounds like you're trying to depreciate components, rather than the
entire aircraft, on an hourly basis. I don't think that's a good idea. That
takes much more work for your accountant. I can imagine doing a
calendar-based depreciation, but not if the calendar is harder on your
aircraft's value than useage is.
| Quote: | Thanks, and any suggestions, corrections, pointers, or ideas would be
welcome.
|
Are you a "partner" to the corporation, or is it third party, such as a
partnership or lease back?
(My explanation here is probably NOT technically correct)
My company (LLC) is the registered owner of my aircraft. We deduct expenses
as incurred and take depreciation and make an entry in "Reserves" on an
hourly basis for such things as recurring maintenance and overhaul.
The LLC then "charges"me for any personal use I make of the aircraft. I then
declare that as personal income, just as when I draw from our cash accounts
for "personal income - cash".
You can get into "trouble" if you try to expense your personal usage, so
make DAMN sure you are really doing business and have documentation to back
it up. This is probably (though not sure) more critical when you have
corporate ownership.
--
Matt Barrow
Performace Homes, LLC.
Colorado Springs, CO |
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Robert M. Gary
Guest
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| Posted: Fri May 11, 2007 4:18 am Post subject: Re: Depreciating aircraft parts, dealing with taxes, etc. |
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On May 10, 2:29 pm, Andrew Gideon <ag7...@gideon.org> wrote:
| Quote: | Most owners, I assume, have corporations which do the actual owning and
which provide a liability firewall. But how are taxes managed?
The issue I think I'm facing is we pay money into the corporation against
future events like overhaul, repainting, etc. These monies add up. But
since this is really just a reserve that's going to be spent in a few
years, I'm loath to have this considered "profit" and thereby become
taxable.
The answer, I'd imagine, is to depreciate those things against which the
reserves are accumulating. For example, if I pay $25/hour into the bucket
for engine reserve, I want to depreciate the engine by $25/hour.
Can one do that? What [very!] little I know about taxes has
calender-based depreciation schedules. Can one have a use-based schedule?
Thanks, and any suggestions, corrections, pointers, or ideas would be
welcome.
- Andrew
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What taxable income are you trying to defer with depreciation???
-Robert |
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Newps
Guest
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| Posted: Fri May 11, 2007 4:30 am Post subject: Re: Depreciating aircraft parts, dealing with taxes, etc. |
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Andrew Gideon wrote:
| Quote: | Most owners, I assume, have corporations which do the actual owning and
which provide a liability firewall.
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Most owners do not as this provides no protection at all. |
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Matt Barrow
Guest
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| Posted: Fri May 11, 2007 4:35 am Post subject: Re: Depreciating aircraft parts, dealing with taxes, etc. |
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"Newps" <nowhere (AT) nowhere (DOT) com> wrote in message
news:j8SdnVW0EbKQNt7bnZ2dnUVZ_v7inZ2d (AT) bresnan (DOT) com...
| Quote: |
Andrew Gideon wrote:
Most owners, I assume, have corporations which do the actual owning and
which provide a liability firewall.
Most owners do not as this provides no protection at all.
|
Depends on "who" the corporation consists of, and for what purpose. |
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Newps
Guest
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| Posted: Fri May 11, 2007 5:33 am Post subject: Re: Depreciating aircraft parts, dealing with taxes, etc. |
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A corporation with the aircraft as the only asset and only one officer,
the owner of the plane.
Matt Barrow wrote:
| Quote: | "Newps" <nowhere (AT) nowhere (DOT) com> wrote in message
news:j8SdnVW0EbKQNt7bnZ2dnUVZ_v7inZ2d (AT) bresnan (DOT) com...
Andrew Gideon wrote:
Most owners, I assume, have corporations which do the actual owning and
which provide a liability firewall.
Most owners do not as this provides no protection at all.
Depends on "who" the corporation consists of, and for what purpose.
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Matt Barrow
Guest
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| Posted: Fri May 11, 2007 5:40 am Post subject: Re: Depreciating aircraft parts, dealing with taxes, etc. |
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"Newps" <nowhere (AT) nowhere (DOT) com> wrote in message
news:JfWdncpiB6BfJN7bnZ2dnUVZ_uvinZ2d (AT) bresnan (DOT) com...
| Quote: | A corporation with the aircraft as the only asset and only one officer, the
owner of the plane.
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That's one scenario. Certainly not the only one.
It sounds to me like Andrew's situation is one of an "Aircraft Management"
corporation.
That may or may not provide liability protection. In the case of an owned
corporation owning the aircraft, it doesn't protect the corporation, but it
does protect the pilot and his personal assets. If the prupose of corporate
ownership is merely to avoid liability, that probably won't work.
| Quote: |
Most owners do not as this provides no protection at all.
Depends on "who" the corporation consists of, and for what purpose. |
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Matt Barrow
Guest
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| Posted: Fri May 11, 2007 6:12 am Post subject: Re: Depreciating aircraft parts, dealing with taxes, etc. |
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"Andrew Gideon" <ag7337 (AT) gideon (DOT) org> wrote in message
news:pan.2007.05.11.01.59.17.70699 (AT) gideon (DOT) org...
| Quote: | On Thu, 10 May 2007 16:14:30 -0700, Matt Barrow wrote:
IIUC, it should be set up as a reserve/expense account, not as income to
the corporation. The only income to the corporation should be the
management fees (??)
I guess I'm confused about how payments into the company, to be used in
some future year, are tracked as an expense.
|
In accounting they're called a "Pre-paid Expense"
| Quote: |
[...]
It sounds like you're trying to depreciate components, rather than the
entire aircraft, on an hourly basis.
That's what I was thinking.
|
It sounds like you don't quite understand "Depreciation". Depreciation is a
reduction in value, there is not periodic cash flow. The only cash
DIFFERENCE is when you sell the asset (in this case, an aircraft) and the
difference is in how much less you get for it than you GAVE for it.
| Quote: |
I don't think that's a good idea.
That takes much more work for your accountant.
That's a good point.
[...]
Are you a "partner" to the corporation, or is it third party, such as a
partnership or lease back?
I'm one of the "shareholders", except that it's a corporation that doesn't
issue shares.
(My explanation here is probably NOT technically correct) My company
(LLC) is the registered owner of my aircraft. We deduct expenses as
incurred and take depreciation and make an entry in "Reserves" on an
hourly basis for such things as recurring maintenance and overhaul.
So you depreciate the value of the entire aircraft by the reserve amount
each hour?
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No, the reserve is for periodic maintenance, such as overhauls, annuals,
etc. For depreciation, it's strictly an accounting/tax entry.
| Quote: | And then, at engine overhaul time, you increase the value of
the airplane by the value of the engine?
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Possibly. Some aircraft appreciate in value, some depreciate.
| Quote: | The LLC then "charges"me for any personal use I make of the aircraft. I
then declare that as personal income, just as when I draw from our cash
accounts for "personal income - cash".
I don't follow this paragraph at all, I'm afraid. If you're paying into
the LLC, how is that personal income?
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I'm not paying into the LLC, all company revenue flows INTO the LLC and the
LLC holds certain assets, one of which is my aircraft.
At the same time, all expenses are paid by the LLC, such as construction
costs, fees, materials, aircraft expenses, etc., and cash that we withdraw
as our income. That way, the value of the company keeps growing nad does not
require "leverage". We've done some small projects that we capitalized (ie,
paid for) ourselves, rather than using banks for cost of construction loans.
If you are not using your aircraft for business, you can't depreciate your
share of it. If you are, you can only depreciate that portion that you use
it for business, but you must use it for business > 50% of the hours you use
it in total.
Such are the benefits of operating as a corporate entity, rather than as an
individual: you pay expenses out of pre-tax dollars rather than out of
after-tax $$.
--
Matt Barrow
Performace Homes, LLC.
Colorado Springs, CO |
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ArtP
Guest
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| Posted: Fri May 11, 2007 6:12 am Post subject: Re: Depreciating aircraft parts, dealing with taxes, etc. |
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On Thu, 10 May 2007 21:50:58 -0400, Andrew Gideon <ag7337 (AT) gideon (DOT) org>
wrote:
| Quote: | Does single owner/single aircraft reduce the protection of the corporate
veil? Is that very different from two owners, or twenty?
|
If you have a partner who is flying the plane when he does something
stupid to crash it you are protected from personal liability unless it
can be shown that you had reason to believe he would do something
stupid. The corporation is toast as is the partner who was flying. If
you are a single owner the corporation offers no protection. |
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Andrew Gideon
Guest
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| Posted: Fri May 11, 2007 6:12 am Post subject: Re: Depreciating aircraft parts, dealing with taxes, etc. |
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On Thu, 10 May 2007 16:14:30 -0700, Matt Barrow wrote:
| Quote: | IIUC, it should be set up as a reserve/expense account, not as income to
the corporation. The only income to the corporation should be the
management fees (??)
|
I guess I'm confused about how payments into the company, to be used in
some future year, are tracked as an expense.
[...]
| Quote: |
It sounds like you're trying to depreciate components, rather than the
entire aircraft, on an hourly basis.
|
That's what I was thinking.
| Quote: | I don't think that's a good idea.
That takes much more work for your accountant.
|
That's a good point.
[...]
| Quote: | Are you a "partner" to the corporation, or is it third party, such as a
partnership or lease back?
|
I'm one of the "shareholders", except that it's a corporation that doesn't
issue shares.
| Quote: |
(My explanation here is probably NOT technically correct) My company
(LLC) is the registered owner of my aircraft. We deduct expenses as
incurred and take depreciation and make an entry in "Reserves" on an
hourly basis for such things as recurring maintenance and overhaul.
|
So you depreciate the value of the entire aircraft by the reserve amount
each hour? And then, at engine overhaul time, you increase the value of
the airplane by the value of the engine?
| Quote: |
The LLC then "charges"me for any personal use I make of the aircraft. I
then declare that as personal income, just as when I draw from our cash
accounts for "personal income - cash".
|
I don't follow this paragraph at all, I'm afraid. If you're paying into
the LLC, how is that personal income?
- Andrew |
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Andrew Gideon
Guest
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| Posted: Fri May 11, 2007 6:12 am Post subject: Re: Depreciating aircraft parts, dealing with taxes, etc. |
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On Thu, 10 May 2007 16:18:34 -0700, Robert M. Gary wrote:
| Quote: | What taxable income are you trying to defer with depreciation???
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I'm not sure that it's taxable income (which is part of my problem), but
I'm envisioning this asset called a "reserve account" growing over the
years until an overhaul is required.
- Andrew |
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Matt Barrow
Guest
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| Posted: Fri May 11, 2007 6:12 am Post subject: Re: Depreciating aircraft parts, dealing with taxes, etc. |
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"Andrew Gideon" <ag7337 (AT) gideon (DOT) org> wrote in message
news:pan.2007.05.11.02.00.29.845803 (AT) gideon (DOT) org...
| Quote: | On Thu, 10 May 2007 16:18:34 -0700, Robert M. Gary wrote:
What taxable income are you trying to defer with depreciation???
I'm not sure that it's taxable income (which is part of my problem), but
I'm envisioning this asset called a "reserve account" growing over the
years until an overhaul is required.
|
It's not an asset, it's a pre-paid expense.
The money is "spent", it just hasn't been distributed yet.
--
Matt Barrow
Performace Homes, LLC.
Colorado Springs, CO |
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Andrew Gideon
Guest
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| Posted: Fri May 11, 2007 6:12 am Post subject: Re: Depreciating aircraft parts, dealing with taxes, etc. |
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On Thu, 10 May 2007 18:33:24 -0600, Newps wrote:
| Quote: | A corporation with the aircraft as the only asset and only one officer,
the owner of the plane.
|
In my particular case, I'm speaking of a corporation owned by 45 members
which owns four aircraft. But I'm guessing that the difference between
this and other organizations is more of scale than anything else.
Does single owner/single aircraft reduce the protection of the corporate
veil? Is that very different from two owners, or twenty?
- Andrew |
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Newps
Guest
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| Posted: Fri May 11, 2007 6:12 am Post subject: Re: Depreciating aircraft parts, dealing with taxes, etc. |
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Andrew Gideon wrote:
| Quote: | Does single owner/single aircraft reduce the protection of the corporate
veil?
|
It eliminates it. You cannot get out of personal liability with a scam,
which is basically what a one owner/single aircraft is. It would take
an average lawyer no time at all to get pierce this. If it were really
an effective protection device how come you don't have one for your
house or your cars? |
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Ron Natalie
Guest
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| Posted: Fri May 11, 2007 5:02 pm Post subject: Re: Depreciating aircraft parts, dealing with taxes, etc. |
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Andrew Gideon wrote:
| Quote: | Most owners, I assume, have corporations which do the actual owning and
which provide a liability firewall. But how are taxes managed?
I just used the regular depreciation schedules. At the time you |
actually dispose of the item, if there is any value above what
it's been depreciated to, then you have to recapture it. If it's
worth less than the depreciation taken, you just take that as a loss. |
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