California corp.

Wow. It'd be great in these groups if folks would just relax a little bit.

I said there are no red flags, because I really didn't want to get involved
in a circular argument with Mike. It's clear that the IRS identifies
certain ratios and expenses and increases the likelyhood of an audit. Does
anyone abosultely know exactly what every one of these are? No. And I
didn't want to have to go through all of that. It was easier just to answer
with tougue in cheek.

r.

"Tony Cox" wrote in message
hlink.net...
"Rob Thomas" wrote in message
...

Mike, you're correct. There are no red flags.

How would you know?

Each year (as I understand it), the IRS top brass have a
meeting to decide exactly what criteria will be used to
decide who gets audited. This is in addition to the 'base
rate' random auditing. Anything 'unusual' can only increase
your chance of being audited if it is statistically worth
devoting the auditors time to it. Tax fairness be damned;
its the $$$'s they want.

A one-man LLC grossing (say) $250K while expensing
25% of that in travel expenses (depreciation, operating
expenses, recurrent training) is certainly 'unusual', and
likely to yield the 'low hanging fruit' that the IRS auditors
love to munch on.

"Mike Rapoport" wrote in message
link.net...

Excepting depreciation, on the return itself, most aircraft expenses are
recorded on lines that don't specify that the expense relates to an
airplane
at all. (Maitenance, travel, rent, interest)

Form 4562 (depreciation) does not say aircraft are "Listed"
property. I think you could hide one as general MACRS
5-year property. Perhaps they'd think it was a big computer!

Tony (not a CPA, but who has had to wrestle with all this crap
thanks to the incompetence of those who have claimed to be).

Mike,

Who said that I wouldn't be liable for my own actions? Of course I am.

It's the same reason to form a C Corporation. If you screw up, the assets
at risk are your business assets not your personal assets. You have the
same "corporate veil" issues.

r.

"Mike Rapoport" wrote in message
link.net...
I don't see how a LLC can protect you from any liablility if you are the
sole owner/employee. There is no way to avoid liability for ones own
actions.

Mike
MU-2

"Rob Thomas" wrote in message
...
Agreed. I'm more concerned about liability from my actual business
activities which the LLC helps provide, as well as a big ole general
liability insurance policy.

r.

"Mike Rapoport" wrote in message
hlink.net...

If it is your aircraft and you are the pilot, then there is no
liability
protection advantage of having a corporation (or other entity) own the
aircraft.

Mike
MU-2

"Rob Thomas" wrote in message
...
Single entity LLC's (one director, me) are treated *exactly* like
sole
proprietorships by the IRS. However, they are still afforded the
same
legal
protections as a C-Corporation. It *used* to be that LLC's were
treated
as
partnerships, or the LLC could elect to be treated as a C-Corp for
tax
purposes. Those regulations changed a few years ago.

I file a 1040, along with a Schedule C (profit/loss from business)
just
as
any other sole proprietorship would.

Just a side note, all of my income is produced through my LLC, so
it's
not
just a holding company for an aircraft. I know some people set them
up
that
way, but just wanted to point out that mine is not setup that way.

r.

"Tony Cox" wrote in message
hlink.net...
"Rob Thomas" wrote in message
...
Absolutely.

The $800 goes directly on Schedule C of my personal tax return.
My
LLC
is
treated as a sole-proprietership by California because I'm the
only
member.
So, I get the legal protection of a C-Corp and the paperwork
ease
of
a
sole-proprietership.

r.


How does that work exactly? I'm not familiar with LLC's, except
that from what I remember you can opt to have them treated as
either partnerships or corporations for tax purposes.

I don't understand how you can pass the $800 back to your
individual
return unless you're treated as an S-corp for tax purposes.

We agree that if you screw up then you are personally liable and your
personal assets are at risk. If you screw up while performing work through
your LLC, then you are still personally liable as your personal assets are
still at risk (as well as those of the LLC). The only time that a legal
entity offers liability and asset protection is when someone else (within
the entity) screws up. If you had an employee performing work for the LLC
and he screwed up (and you had nothing to do with it), he and the LLC would
be liable and your personal assets would be safe. Since you are (I think
from your posts) the only employee, I don't see how an LLC offers any
protection of your personal assets.

Mike
MU-2

"Rob Thomas" wrote in message
...
Mike,

Who said that I wouldn't be liable for my own actions? Of course I am.

It's the same reason to form a C Corporation. If you screw up, the assets
at risk are your business assets not your personal assets. You have the
same "corporate veil" issues.

r.

"Mike Rapoport" wrote in message
link.net...
I don't see how a LLC can protect you from any liablility if you are the
sole owner/employee. There is no way to avoid liability for ones own
actions.

Mike
MU-2

"Rob Thomas" wrote in message
...
Agreed. I'm more concerned about liability from my actual business
activities which the LLC helps provide, as well as a big ole general
liability insurance policy.

r.

"Mike Rapoport" wrote in message
hlink.net...

If it is your aircraft and you are the pilot, then there is no
liability
protection advantage of having a corporation (or other entity) own
the
aircraft.

Mike
MU-2

"Rob Thomas" wrote in message
...
Single entity LLC's (one director, me) are treated *exactly* like
sole
proprietorships by the IRS. However, they are still afforded the
same
legal
protections as a C-Corporation. It *used* to be that LLC's were
treated
as
partnerships, or the LLC could elect to be treated as a C-Corp for
tax
purposes. Those regulations changed a few years ago.

I file a 1040, along with a Schedule C (profit/loss from business)
just
as
any other sole proprietorship would.

Just a side note, all of my income is produced through my LLC, so
it's
not
just a holding company for an aircraft. I know some people set
them
up
that
way, but just wanted to point out that mine is not setup that way.

r.

"Tony Cox" wrote in message
hlink.net...
"Rob Thomas" wrote in message
...
Absolutely.

The $800 goes directly on Schedule C of my personal tax
return.
My
LLC
is
treated as a sole-proprietership by California because I'm the
only
member.
So, I get the legal protection of a C-Corp and the paperwork
ease
of
a
sole-proprietership.

r.


How does that work exactly? I'm not familiar with LLC's, except
that from what I remember you can opt to have them treated as
either partnerships or corporations for tax purposes.

I don't understand how you can pass the $800 back to your
individual
return unless you're treated as an S-corp for tax purposes.

Mike,

You're right. I mispoke.

I absolutely agree that the LLC doesn't provide a whole lot of protection,
especially in the liability area. That's why I carry a ton of general
liability insurance as well as an errors and omissions policy. I'd disagree
about the assumption that you wouldn't be liable if you had an employee
screw up. I think you're still liable in that case as well. I do employ
independent contractors on occasion, but the liability in those cases is
often assigned in the contract with the client.

However, when it comes to debts taken out by the LLC, creditors cannot go
after personal assets to secure those debts. I'm sure you'll disagree with
me on this one.

r.

"Mike Rapoport" wrote in message
link.net...
We agree that if you screw up then you are personally liable and your
personal assets are at risk. If you screw up while performing work
through
your LLC, then you are still personally liable as your personal assets are
still at risk (as well as those of the LLC). The only time that a legal
entity offers liability and asset protection is when someone else (within
the entity) screws up. If you had an employee performing work for the LLC
and he screwed up (and you had nothing to do with it), he and the LLC
would
be liable and your personal assets would be safe. Since you are (I think
from your posts) the only employee, I don't see how an LLC offers any
protection of your personal assets.

Mike
MU-2

"Rob Thomas" wrote in message
...
Mike,

Who said that I wouldn't be liable for my own actions? Of course I am.

It's the same reason to form a C Corporation. If you screw up, the
assets
at risk are your business assets not your personal assets. You have the
same "corporate veil" issues.

r.

"Mike Rapoport" wrote in message
link.net...
I don't see how a LLC can protect you from any liablility if you are
the
sole owner/employee. There is no way to avoid liability for ones own
actions.

Mike
MU-2

"Rob Thomas" wrote in message
...
Agreed. I'm more concerned about liability from my actual business
activities which the LLC helps provide, as well as a big ole general
liability insurance policy.

r.

"Mike Rapoport" wrote in message
hlink.net...

If it is your aircraft and you are the pilot, then there is no
liability
protection advantage of having a corporation (or other entity) own
the
aircraft.

Mike
MU-2

"Rob Thomas" wrote in message
...
Single entity LLC's (one director, me) are treated *exactly*
like
sole
proprietorships by the IRS. However, they are still afforded
the
same
legal
protections as a C-Corporation. It *used* to be that LLC's were
treated
as
partnerships, or the LLC could elect to be treated as a C-Corp
for
tax
purposes. Those regulations changed a few years ago.

I file a 1040, along with a Schedule C (profit/loss from
business)
just
as
any other sole proprietorship would.

Just a side note, all of my income is produced through my LLC,
so
it's
not
just a holding company for an aircraft. I know some people set
them
up
that
way, but just wanted to point out that mine is not setup that
way.

r.

"Tony Cox" wrote in message
hlink.net...
"Rob Thomas" wrote in message
...
Absolutely.

The $800 goes directly on Schedule C of my personal tax
return.
My
LLC
is
treated as a sole-proprietership by California because I'm
the
only
member.
So, I get the legal protection of a C-Corp and the paperwork
ease
of
a
sole-proprietership.

r.


How does that work exactly? I'm not familiar with LLC's,
except
that from what I remember you can opt to have them treated as
either partnerships or corporations for tax purposes.

I don't understand how you can pass the $800 back to your
individual
return unless you're treated as an S-corp for tax purposes.

"Rob Thomas" wrote in message
...
Mike,

You're right. I mispoke.

I absolutely agree that the LLC doesn't provide a whole lot of protection,
especially in the liability area. That's why I carry a ton of general
liability insurance as well as an errors and omissions policy. I'd
disagree
about the assumption that you wouldn't be liable if you had an employee
screw up. I think you're still liable in that case as well. I do employ
independent contractors on occasion, but the liability in those cases is
often assigned in the contract with the client.

However, when it comes to debts taken out by the LLC, creditors cannot go
after personal assets to secure those debts. I'm sure you'll disagree
with
me on this one.



No, you are wrong...I won't disagree...

Mike
MU-2

Dang! And I was batting 1.000!

r.

"Mike Rapoport" wrote in message
link.net...

"Rob Thomas" wrote in message
...
Mike,

You're right. I mispoke.

I absolutely agree that the LLC doesn't provide a whole lot of
protection,
especially in the liability area. That's why I carry a ton of general
liability insurance as well as an errors and omissions policy. I'd
disagree
about the assumption that you wouldn't be liable if you had an employee
screw up. I think you're still liable in that case as well. I do
employ
independent contractors on occasion, but the liability in those cases is
often assigned in the contract with the client.

However, when it comes to debts taken out by the LLC, creditors cannot
go
after personal assets to secure those debts. I'm sure you'll disagree
with
me on this one.



No, you are wrong...I won't disagree...

Mike
MU-2

Tony Cox wrote:
Each year (as I understand it), the IRS top brass have a
meeting to decide exactly what criteria will be used to
decide who gets audited. This is in addition to the 'base
rate' random auditing. Anything 'unusual' can only increase
your chance of being audited if it is statistically worth
devoting the auditors time to it. Tax fairness be damned;
its the $$$'s they want.

The above description does not remotely describe how IRS annually
manges its enforcement programs. They do not do random audits, nor
does "top brass" decide on minute matters such as private aircraft
usage to be a target. The potential effect of claiming private
aircraft expenses is that they tend to be large, inflating travel
expense deductions relative to size and scope of the business. If
selected for audit, it would be on that basis.

Fred F.

"TaxSrv" wrote in message
...
Tony Cox wrote:
Each year (as I understand it), the IRS top brass have a
meeting to decide exactly what criteria will be used to
decide who gets audited. This is in addition to the 'base
rate' random auditing. Anything 'unusual' can only increase
your chance of being audited if it is statistically worth
devoting the auditors time to it. Tax fairness be damned;
its the $$$'s they want.

The above description does not remotely describe how IRS annually
manges its enforcement programs. They do not do random audits, nor
does "top brass" decide on minute matters such as private aircraft
usage to be a target. The potential effect of claiming private
aircraft expenses is that they tend to be large, inflating travel
expense deductions relative to size and scope of the business. If
selected for audit, it would be on that basis.

Fred F.

If you can more properly describe the process, please do.
Since I don't believe the depreciation schedules even requires you
to list an aircraft specifically, clearly it can't be used as an
initial criterion. But such travel expenses vs. income can be
easily tested for and used as a trigger, as I said in another post.

As for 'random' audits, from what you say, entities (people
or corporations) are in no danger whatsoever of being
audited if they report earning and expenses according to
industry norms. Somehow, this doesn't ring true.

"Tony Cox" wrote:
The potential effect of claiming private
aircraft expenses is that they tend to be large, inflating travel
expense deductions relative to size and scope of the business. If
selected for audit, it would be on that basis.
Fred F.

If you can more properly describe the process, please do.

Way off topic, but the IRS computer use a multivariant statistical
analysis (discriminant function), which only in part weighs deductions
against income.

But such travel expenses vs. income can be
easily tested for and used as a trigger, as I said in another post.

They cannot easily program the big computer to do that, nor would
they, as this method was used up to about 1970 and was scrapped as
unproductive.

As for 'random' audits, from what you say, entities (people
or corporations) are in no danger whatsoever of being
audited if they report earning and expenses according to
industry norms. Somehow, this doesn't ring true.

Filing such a return is a criminal offense even without proof of tax
evasion purpose. In the realm of actual tax fraud, taxpayers don't
make up income/deductions in a manner such as using industry averages,
so tax criminals must know this is a most foolish way to go about it
(and legally they are wise).

It is a myth that when returns are processed, IRS people look for "red
flags," except for extreme situations like tax protest returns.
Further, the number of returns filed which claim business travel in
single-engine aircraft would be very small according to GAMA
statistics, so there's little reason for IRS to consider it a big
compliance problem. The issue gets covered in the normal course of
audit selections.

Fred F.