AOPA Plane Giveaway and Taxes

Why buy it from the recipient? Why not just pick up trade-a-plane and
buy a plane? If your corp is going to buy a plane, winning one by the
owner doesn't effect anything. The owner still pays all taxes from the
winning.

"Robert M. Gary" wrote:

Why buy it from the recipient? Why not just pick up trade-a-plane and
buy a plane? If your corp is going to buy a plane, winning one by the
owner doesn't effect anything. The owner still pays all taxes from the
winning.

Not if the s-corp owner and the winner are the same person.

--
Peter

"Robert M. Gary" wrote:

Why buy it from the recipient? Why not just pick up trade-a-plane and
buy a plane? If your corp is going to buy a plane, winning one by the
owner doesn't effect anything. The owner still pays all taxes from the
winning.

Sorry, my original response was a result of reading your quote above too
fast. After understanding your comment, I should point out that the goal
of such a transaction would be to minimize the net income tax owed to the
IRS that year, not simply to acquire an aircraft.

--
Peter

But I'm not sure how this is helping. I win an airplane and have to pay
tax on the value. I then sell it to my corp, receive a check from my
corp and pay the tax. I guess I don't see the difference. If you are
trying to sell it to your corp for less than FMV then I believe the IRS
provides jail terms for such fancy book work designed to avoid paying
tax. The legal word for this is "arm's length transaction". Even if you
"gift" the plane to your corp, you are required to report it as FMV as
if it was an "arm's length transaction" (i.e. you told it to someone
you didn't know.)

-Robert

"Robert M. Gary" wrote:
Even if you "gift" the plane to your corp, you are required
to report it as FMV as if it was an "arm's length transaction".

Not if in exchange for stock as is the normal case. Called a
"section 351 transfer."

Fred F.

But if its a holding company designed simply to own the airplane (as
was the original thread) then you already own all the stock. I just
don't see incorporating helping you in anyway other than actually using
the plane for a business and being able to capture the depreciation
quicker (Time Value of Money gain, i.e. its better to have a dollar
today than tomorrow ).

-Robert

"Robert M. Gary" wrote:

I then sell it to my corp, receive a check from my
corp and pay the tax. I guess I don't see the difference. If you are
trying to sell it to your corp for less than FMV then I believe the IRS
provides jail terms for such fancy book work designed to avoid paying
tax.

Robert, the goal here is not to avoid the income tax and tread illegal
waters as you deduced, but rather to legally use the tools of the tax code
to create an expense (accelerated depreciation) large enough to offset most
of the income tax due on the winnings.

Again, the big picture goal is to significantly reduce the size of the
check that the winner has to send to the IRS on April 15th of the following
year.

Of course, come the date of the sale of aircraft some time in the future,
any accelerated depreciation will be recaptured by the IRS in the form of a
capital gains tax, but this is only a straight 20% tax versus an individual
income tax bracket of normally a 32% to 40% tax (depending on one's taxable
income).

--
Peter

"Peter R." wrote:
... any accelerated depreciation will be recaptured by the IRS in
the
form of a capital gains tax, but this is only a straight 20% tax
versus
an individual income tax bracket of normally a 32% to 40% tax.

Any and all depreciation, not just accelerated, is recaptured at
ordinary rates, not capital gains rates. Also, the aircraft has to
be used in an actual trade or business in order to depreciate it.

Fred F.

TaxSrv wrote:

Any and all depreciation, not just accelerated, is recaptured at
ordinary rates, not capital gains rates.

And what is the ordinary rate? A fixed rate or one that is variable based
on income?

Also, the aircraft has to
be used in an actual trade or business in order to depreciate it.

Of course. Again, I was never proposing anything illegal. Actually, my
original proposal was followed by a smiley, implying I wasn't overly
serious about it, but I and others quickly discarded or ignored that
intention.

--
Peter

"Peter R." wrote:
Any and all depreciation, not just accelerated, is recaptured
at
ordinary rates, not capital gains rates.

And what is the ordinary rate? A fixed rate or one that is
variable based
on income?

Same as on other income like wages, and depending upon one's
taxable income. The marginal tax rates vary between 10 and 35%.

Fred F.