Advocate Consulting Helps Clear The Haze
by ANN Correspondent Chris Esposito
Advocate Consulting President Louis Meiners, Jr. sat down with
ANN recently at AirVenture 2007, to discuss common misconceptions
about taxes in the aviation industry, and offered some tips to
reduce the tax burden on individuals as well as corporations.
Meiners is a CPA and attorney as well as a 4000 hour pilot. He has
been consulting with aviation-specific risks for several years.
Most pilots are concerned with the write-off process for
business-use aircraft. Meiners says if aircraft is used for
business more than fifty percent of the time, and this time is
properly documented, businesses "get to write off their airplane."
If the airplane is used for business purposes less than fifty
percent of the time, the tax benefits are not as substantial, as
the aircraft is considered a "hobby" expense. Meiners says
typically aircraft can be written off over a period of five years,
and depreciation factors into this deduction.
For aircraft owners operating their planes for pleasure, Meiners
says "in some cases it's possible for them to write off the part of
the airplane that's personal." The aircraft could be considered
listed property for a deduction in certain instances, though
special documents would be required.
Typically, contemporaneous laws require documents explaining
where and when the aircraft was used, the purpose of each aircraft
trip, and the interests of those on board.
Aircraft owners using their planes for an occasional trip to a
second home, for instance, want to ask themselves what the primary
purpose of the trip is. While the laws are intended to offer tax
breaks only for true business purposes, Meiners says there is "no
statutory requirement that you can't have fun." Family trips are
not so simple, as justifying a true business outing may be
difficult.
The IRS has special examination procedures for aircraft owners,
Meiners explained. A business plan detailing the business use of
the aircraft is highly recommended in case the Feds come knocking.
"Other than that," says Meiners, "an airplane is no different than
any other business tool."
"There are often opportunities to control if you owe sales tax
on an airplane." explains Meiners. The key is how you buy the
aircraft. If an LLC is sold and an airplane is an asset of the LLC,
the tax aspects of the sale are much different than if the airplane
was sold as an object. If an airplane is bought in a state with no
tax, and brought back to a state that would have had a tax, a use
tax is typically due. A use tax is a compensatory tax that is
intended to mirror sales tax. Usually it is much easier to control
a use tax, as some states have significant exemptions on these
taxes. Meiners says the states that have exemptions still send out
a request for the tax due, even if the airplane could be bought
tax-free.
As many ANN readers are aware, Maine has been trying to tax
pilots flying their aircraft into the state for extended periods of
time. To help avoid this issue, Meiners recommends suppressing your
N number. It is "too easy for states to arbitrarily send out
notices to people." explains Meiners. The NBAA designed the Block
Aircraft Registration Request (BARR) program, which prevents your
airplane from being identified by flight tracking software. This
increases your privacy and makes it harder for states to stick
taxes on aircraft that are not based there.
A common misconception, according to Meiners, is that Delaware
corporations provide an adequate tax shield. Meiners actually
recommends Nevada corporations, as Nevada has secrecy laws that
make it difficult for other states to track aircraft and find out
who the airplane owner is.
Tax exemptions have long been a mystery to aviators. The mission
of Advocate Consulting and similar firms is to simplify the complex
tax deduction process specific to aviation. Aviators and business
owners should consider consulting with a CPA and attorney
experienced in the aviation realm, as they are likely to shield
some of your money from Uncle Sam.
After all, taxation with representation isn't so great
either.
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