Depreciating aircraft parts, dealing with taxes, etc.

"Andrew Gideon" wrote in message
news
On Thu, 10 May 2007 20:03:02 -0700, Matt Barrow wrote:

In accounting they're called a "Pre-paid Expense"

Ah.

[...]


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".

That wouldn't surprise me at all laugh.

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.

Hmm. I thought that depreciation showed on the books as a loss even
before the depreciating asset was sold.

Not a loss, but a reduction in asset valuation which can therefore be
charged against income.

This would have - in my
admittedly ignorant view - permitted the corporation to accumulate the
asset of the cash paid into reserves w/o showing a profit.



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.

You don't pay an hourly fee into the LLC, the money from which goes into
an account that is used to pay expenses like overhaul etc.?

The LLC is my company, not a specific LLC to hold/maintain the aircraft.

We have an account on our books for something like "Maintenance Reserve",
held as a liability until the time the expense is paid. For our TSIO-550C we
allocate (not pay) $26.50 an hour for a 2000 hour TBO and $34 something an
hour for various maintenance such as the annual, avionics upgrades,
inspections and even unforeseen maintenance.


[...]

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.

Hmm. So if the aircraft are not used for business - which is mostly, if
not entirely, my case - then depreciation isn't possible?

Correct. Depreciation is a business deduction, not a personal one.

But isn't the
corporation renting out that asset, thereby making it the corporation's
business (even if the people using the rental aren't using this to further
their own businesses)?

As a shareholder, you could only take your portion of the allotment of
depreciation if your use was for business. In the (cross)eyes of the IRS,
whether you own it, or the LLC owns it, what makes all the difference is how
you USE it (business versus personal).

Personal use is not going to be deducible. In that case (personal use), it's
just a really expensive toy. Not only for depreciation (some Bonanza's
APPRECIATE in value, so you'd have to recoup any deductions for business
use) but for expenses.

When a corporate entity hold assets, you have to account for them
separately. For instance, my aircraft, certain computers we have (I have a
$5000 blueprint printer), my SUV, office furniture, etc, is on my LLC's
books. OTOH, my wife's car, my personal car, etc., are our _personal_
property and we pay for them like anyone else (i.e., out of after-tax income
to us from the LLC).

For a good explanation (i.e., laymen's terms) get the book "Rich Dad, Poor
Dad" by Robert T. Kiyosaki http://preview.tinyurl.com/25o2j8 . It
explains common issues with a eye towards self-employment and the benefits
that regular working people miss out on.

Hope that helps, but understand that I'm not an accountant, but I pay plenty
for their services :~(


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