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Depreciating aircraft parts, dealing with taxes, etc.



 
 
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  #11  
Old May 11th 07, 03:30 AM posted to rec.aviation.owning
ArtP
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Posts: 44
Default Depreciating aircraft parts, dealing with taxes, etc.

On Thu, 10 May 2007 21:50:58 -0400, Andrew Gideon
wrote:


Does single owner/single aircraft reduce the protection of the corporate
veil? Is that very different from two owners, or twenty?


If you have a partner who is flying the plane when he does something
stupid to crash it you are protected from personal liability unless it
can be shown that you had reason to believe he would do something
stupid. The corporation is toast as is the partner who was flying. If
you are a single owner the corporation offers no protection.
  #12  
Old May 11th 07, 03:32 AM posted to rec.aviation.owning
Newps
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Default Depreciating aircraft parts, dealing with taxes, etc.



Andrew Gideon wrote:


Does single owner/single aircraft reduce the protection of the corporate
veil?




It eliminates it. You cannot get out of personal liability with a scam,
which is basically what a one owner/single aircraft is. It would take
an average lawyer no time at all to get pierce this. If it were really
an effective protection device how come you don't have one for your
house or your cars?


  #13  
Old May 11th 07, 04:03 AM posted to rec.aviation.owning
Matt Barrow[_4_]
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Posts: 1,119
Default 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


  #14  
Old May 11th 07, 04:05 AM posted to rec.aviation.owning
Matt Barrow[_4_]
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Posts: 1,119
Default Depreciating aircraft parts, dealing with taxes, etc.


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


  #15  
Old May 11th 07, 01:02 PM posted to rec.aviation.owning
Ron Natalie
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Posts: 1,175
Default Depreciating aircraft parts, dealing with taxes, etc.

Andrew Gideon wrote:
Most owners, I assume, have corporations which do the actual owning and
which provide a liability firewall. But how are taxes managed?

I just used the regular depreciation schedules. At the time you
actually dispose of the item, if there is any value above what
it's been depreciated to, then you have to recapture it. If it's
worth less than the depreciation taken, you just take that as a loss.
  #16  
Old May 11th 07, 01:04 PM posted to rec.aviation.owning
Ron Natalie
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Posts: 1,175
Default Depreciating aircraft parts, dealing with taxes, etc.

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.
  #17  
Old May 11th 07, 01:06 PM posted to rec.aviation.owning
Ron Natalie
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Posts: 1,175
Default Depreciating aircraft parts, dealing with taxes, etc.

Newps wrote:


Andrew Gideon wrote:

Most owners, I assume, have corporations which do the actual owning and
which provide a liability firewall.



Most owners do not as this provides no protection at all.


I seem to have been confused earlier. Is this for personal ownership
or are you operating a business here?

A corporation does little to help a single owner protect himself
from liability. Further all the tax stuff is void if you're not
operating it as a business (regardless of how the ownership is
held).
  #18  
Old May 11th 07, 05:15 PM posted to rec.aviation.owning
Andrew Gideon
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Posts: 516
Default Depreciating aircraft parts, dealing with taxes, etc.

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. 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.?

[...]

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? 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)?

- Andrew

  #19  
Old May 11th 07, 05:44 PM posted to rec.aviation.owning
Robert M. Gary
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Posts: 2,767
Default Depreciating aircraft parts, dealing with taxes, etc.

On May 10, 7:00 pm, Andrew Gideon wrote:
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.

- Andrew


Only the interest is taxable. Money put in by the owners to cover
expenses (now or future) shouldn't be taxable. If you owned a lunch
truck and needed to write a personal check to make payroll one month
you wouldn't tax that either.
However, depending on your state, you may owe a minimum state income
tax. In California the minimum tax for a corporation or LLC that has
an operation (i.e. airplane) in the state is $800/yr. I believe New
York and a few other states also have this "minimum franchise tax", so
watch out.

-robert

  #20  
Old May 11th 07, 07:00 PM posted to rec.aviation.owning
xyzzy
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Posts: 193
Default Depreciating aircraft parts, dealing with taxes, etc.

On May 10, 7:14 pm, "Matt Barrow"
wrote:
"Andrew Gideon" wrote in message

news


Most owners, I assume, have corporations which do the actual owning and
which provide a liability firewall. But how are taxes managed?


The issue I think I'm facing is we pay money into the corporation against
future events like overhaul, repainting, etc. These monies add up. But
since this is really just a reserve that's going to be spent in a few
years, I'm loath to have this considered "profit" and thereby become
taxable.


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 (??)



The answer, I'd imagine, is to depreciate those things against which the
reserves are accumulating. For example, if I pay $25/hour into the bucket
for engine reserve, I want to depreciate the engine by $25/hour.


Can one do that? What [very!] little I know about taxes has
calender-based depreciation schedules. Can one have a use-based schedule?


It sounds like you're trying to depreciate components, rather than the
entire aircraft, on an hourly basis. I don't think that's a good idea. That
takes much more work for your accountant. I can imagine doing a
calendar-based depreciation, but not if the calendar is harder on your
aircraft's value than useage is.

Thanks, and any suggestions, corrections, pointers, or ideas would be
welcome.


Are you a "partner" to the corporation, or is it third party, such as a
partnership or lease back?

(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.

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".

You can get into "trouble" if you try to expense your personal usage, so
make DAMN sure you are really doing business and have documentation to back
it up. This is probably (though not sure) more critical when you have
corporate ownership.


Reading this I don't think you and the OP are talking about the same
concept. You're talking about your business (which is primarily
building homes, right?) owning an airplane for business use.

Andrew is talking about owning an airplane for personal use, but
owning it in a corporation that exists only own the plane -- as a
liability firewall. He's not trying to make airplane usage deductible
or a business xpense, he just wants to know how to account for the
money that is deposited to pay for future airplane expenses.

 




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