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

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

Well, his first issue was taking depreciation, which is why I used the
examples I did. Only later did he bring up the liability issue, which in his
case, was no protection for HIS mistakes.

In my case, I have some liability protection for my PERSONAL assets, but our
company may take a hit. In that case, I'm out of a job, but not homeless
(just homely).


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

"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.

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 May 11, 1:08 pm, "Gig 601XL Builder" wrDOTgiaconaATsuddenlink.net
wrote:
Matt Barrow wrote:
"Ron Natalie" wrote in message
om...
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.- Hide quoted text -

- Show quoted text -

Money put in the corporation to prop up the corporation is not
"earnings".

-robert

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

"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.