Depreciating aircraft parts, dealing with taxes, etc.

"Andrew Gideon" wrote in message
news
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"

[...]


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.


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?

No, the reserve is for periodic maintenance, such as overhauls, annuals,
etc. For depreciation, it's strictly an accounting/tax entry.

And then, at engine overhaul time, you increase the value of
the airplane by the value of the engine?

Possibly. Some aircraft appreciate in value, some depreciate.


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?

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