Depreciating aircraft parts, dealing with taxes, etc.

Matt Barrow wrote:
"Ron Natalie" wrote in message
m...
Matt Barrow wrote:
"Andrew Gideon" wrote in message
news 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.

As far as taxes in a corporation is concerned, it's an asset.
It doesn't matter that it's been allocated for a particular
purpose, if it's still sitting in the bank account it ain't
spent.

Written against a liability, rather than Earnings.

This is true. If it weren't the case no corporation would ever pay taxes.
They'd just say the money they earned was going to be spent for widgets at
some time in the future.

"Gig 601XL Builder" wrDOTgiaconaATsuddenlink.net wrote in message
...
Matt Barrow wrote:
"Ron Natalie" wrote in message
m...
Matt Barrow wrote:
"Andrew Gideon" wrote in message
news 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.

As far as taxes in a corporation is concerned, it's an asset.
It doesn't matter that it's been allocated for a particular
purpose, if it's still sitting in the bank account it ain't
spent.

Written against a liability, rather than Earnings.

This is true. If it weren't the case no corporation would ever pay taxes.
They'd just say the money they earned was going to be spent for widgets at
some time in the future.

That's not how a pre-paid expense works.

On Fri, 11 May 2007 14:09:41 -0700, "Matt Barrow"
wrote:

That's not how a pre-paid expense works.



True!

An easy to understand example of a pre-paid expense is an insurance
premium. You pay for so many months and use up (account for it) one
month at a time until it's depleted.

On Fri, 11 May 2007 14:09:41 -0700, "Matt Barrow"
wrote:


"Gig 601XL Builder" wrDOTgiaconaATsuddenlink.net wrote in message
...
Matt Barrow wrote:
"Ron Natalie" wrote in message
m...
Matt Barrow wrote:
"Andrew Gideon" wrote in message
news 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.

As far as taxes in a corporation is concerned, it's an asset.
It doesn't matter that it's been allocated for a particular
purpose, if it's still sitting in the bank account it ain't
spent.

Written against a liability, rather than Earnings.

This is true. If it weren't the case no corporation would ever pay taxes.
They'd just say the money they earned was going to be spent for widgets at
some time in the future.

That's not how a pre-paid expense works.

It's not a damn prepaid expense -- it is a sinking fund (paid in capital).
It does not become an expense (prepaid or otherwise) until money actually
flow out to some third party.

My suggestion -- go buy a book on accounting! Most of the posts in this
thread are seriously out of touch with accounting principles and/or
understanding of financial accounts!

If there is no business that can (even in theory) earn a profit, then there
is no depreciation expense and no insulation from liability through the
corporation.

Second suggestion (to the OP) -- hire an accountant and/or a tax advisor
before you dig yourself into a hole that the IRS will trip over.
--
Jay.
(remove dashes for legal email address)

On May 11, 7:07 pm, "Jay Somerset" wrote:
On Fri, 11 May 2007 14:09:41 -0700, "Matt Barrow"





wrote:

"Gig 601XL Builder" wrDOTgiaconaATsuddenlink.net wrote in message
...
Matt Barrow wrote:
"Ron Natalie" wrote in message
. com...
Matt Barrow wrote:
"Andrew Gideon" wrote in message
news 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.

As far as taxes in a corporation is concerned, it's an asset.
It doesn't matter that it's been allocated for a particular
purpose, if it's still sitting in the bank account it ain't
spent.

Written against a liability, rather than Earnings.

This is true. If it weren't the case no corporation would ever pay taxes.
They'd just say the money they earned was going to be spent for widgets at
some time in the future.

That's not how a pre-paid expense works.

It's not a damn prepaid expense -- it is a sinking fund (paid in capital).
It does not become an expense (prepaid or otherwise) until money actually
flow out to some third party.

My suggestion -- go buy a book on accounting! Most of the posts in this
thread are seriously out of touch with accounting principles and/or
understanding of financial accounts!

If there is no business that can (even in theory) earn a profit, then there
is no depreciation expense and no insulation from liability through the
corporation.

Corporations formed to hold an aircraft are incorporated specifically
as not-for-profit. Mine is a mutual benefit company, there are other
ways but for-profit would never be a good way to incorporate a holding
company. It in no way affects the liability protection. The only way
to lose the liability protection is to not treat it like a real
company (write personal checks for maintenance and not expense them
back, etc).

-Robert

Robert M. Gary wrote:


Corporations formed to hold an aircraft are incorporated specifically
as not-for-profit.

Not always, and there are some good reasons why you may not want to
do this (ultimate disposal of assets).

Liability issues are different beasts than taxes, but you really
want to maintain the corporation as a company for BOTH purposes.

On May 12, 5:08 am, Ron Natalie wrote:
Robert M. Gary wrote:

Corporations formed to hold an aircraft are incorporated specifically
as not-for-profit.

Not always, and there are some good reasons why you may not want to
do this (ultimate disposal of assets).

If the purpose of the company is to hold the asset I cannot see why
you would want to incorporate for-profit. If you someday want to use
the company for photography or something, that is a very different
subject and pretty much everything said on this thread would not
apply.

Liability issues are different beasts than taxes, but you really
want to maintain the corporation as a company for BOTH purposes.

Actually for tax purposes you are much better off not incorporating.
When you own the plane directly you can deduct airplane taxes
(property taxes). When you hold it in a company you cannot. SInce the
company does not have income, the deduction is wasted.

-Robert, CFII, MBA, owner Sacramento Flyers, Inc. (a Mooney)

"Jay Somerset" wrote in message
...
On Fri, 11 May 2007 14:09:41 -0700, "Matt Barrow"
wrote:

This is true. If it weren't the case no corporation would ever pay
taxes.
They'd just say the money they earned was going to be spent for widgets
at
some time in the future.

That's not how a pre-paid expense works.

It's not a damn prepaid expense -- it is a sinking fund (paid in capital).

Pre-paid maintenance (into a reserve account) is "paid in capital"?

It does not become an expense (prepaid or otherwise) until money actually
flow out to some third party.

That's what I said.

My suggestion -- go buy a book on accounting! Most of the posts in this
thread are seriously out of touch with accounting principles and/or
understanding of financial accounts!

Such as your claim of a sinking fund?


If there is no business that can (even in theory) earn a profit, then
there
is no depreciation expense and no insulation from liability through the
corporation.

WTF?


Second suggestion (to the OP) -- hire an accountant and/or a tax advisor
before you dig yourself into a hole that the IRS will trip over.


Third sugesstion to Jay: Blow it out your ass, you pompous prick.

Matt Barrow wrote:
t ain't
spent.
Written against a liability, rather than Earnings.
This is true. If it weren't the case no corporation would ever pay taxes.
They'd just say the money they earned was going to be spent for widgets at
some time in the future.

That's not how a pre-paid expense works.


A reserve account is NOT a pre-paid expense.

A pre-paid expense requires you to pay it to someone.

"Ron Natalie" wrote in message
m...
Matt Barrow wrote:
t ain't
spent.
Written against a liability, rather than Earnings.
This is true. If it weren't the case no corporation would ever pay
taxes. They'd just say the money they earned was going to be spent for
widgets at some time in the future.

That's not how a pre-paid expense works.


A reserve account is NOT a pre-paid expense.

A pre-paid expense requires you to pay it to someone.

I don't recall holding any difference with that. (Are you confusing me with
"Builder"?)

AIR, you have a reserve to pay a KNOWN FUTURE expense. This is distinct from
a CAPITAL account which is set aside to buy a CAPITAL ASSET in the future.

As one put it, this is different still from a sinking fund which is, IIUC,
how depreciation is handled when a depreciable item will have to be replaced
when it's useful life is ended.

I'd call my accountant, but I don't want to pay a couple hunderd $$$ to
answer "silly" Usenet questions! :~)


--
Matt Barrow
Performace Homes, LLC.
Colorado Springs, CO