Aircraft Tax Planning

Aircraft Tax Planning - Aircraft have tremendous potential to be a valuable tool in business. However, aircraft present themselves as a target to various federal and state tax authorities. Perhaps business aircraft got caught in the crosshairs when the CEOs of the “Big Three” flew to Washington D.C. in 2008 to request loan packages from the federal government to keep their manufacturing operations running.

It is quite possible that this handful of flights was the genesis of the increased scrutiny on business aircraft; however, many tax practitioners are of the opinion that travel in general is in fact the better historic and more consistent audit flag of the IRS.

Aircraft Tax Planning

Anyone that is considering acquiring and operating an aircraft to support a trade or business should carefully consider the unique challenges that aircraft present with respect to legal, tax (both state and federal) and FAA regulatory issues.

To further the independent contractor discussion, the business owner can negotiate to stay on to provide management and consulting services. A portion of the sales price of the business can be categorized as earnouts, payable as consulting fees, providing revenue that can be used to justify the ongoing operation of a business aircraft.

Daniel Cheung, CPA is the principal of Aviation Tax Consultants. He is based at ATC's Scottsdale, Arizona office. ATC assists aircraft purchasers in acquiring aircraft in a tax-efficient manner. Services include the elimination or reduction of sales and use tax, maximizing income tax savings, controlling the cost of personal use of the aircraft, and complying with Federal Aviation Regulations.

Cooperation with client’s tax and legal advisors is welcome and encouraged. Tax reform is a strong possibility in the months and years ahead, as we witness a new administration and Congress in Washington. However, it is important to realize that as of January 2021, the provisions of the Tax Cuts and Jobs Act of 2017 continue to govern business aircraft transactions.

The TCJA provides that aircraft purchases made in 2021 and 2022 are eligible for 100% bonus depreciation, allowing qualified businesses to deduct 100% of the aircraft purchase price in the year of purchase. [1] What many well-intentioned owners and pilots also failed to mention is that Delaware does in fact have a gross-receipts tax on aircraft sales depending on aircraft 'size' and that Nevada taxing authorities have the ability to impose a 300% '.

evasion' penalty on a Nevada resident intentionally trying to avoid Nevada sales/use tax owed under the law! As we find ourselves in the first quarter of 2021, many private companies and individuals operating general aviation aircraft, or considering adding general aviation aircraft to our business operations, find ourselves uncertain regarding the year ahead.

With clear political change in Washington, coupled with fewer conferences and face-to-face meetings, the uncertainty of 2020 maintains a cloud over early 2021 planning. It is essential to remember that general aviation aircraft continue to serve a vital role in growing and maintaining business operations in challenging times, and may provide a new and unprecedented public health benefit.

Thoughtful planning now may help assure that your business is well positioned for a strong year end and outlook beyond. Advocate does not compete with your other advisor's services but instead compliment them. By working with your advisors, Advocate develops an aircraft plan, integrates it into your overall planning, drafts necessary documents, and coordinates its execution.

Internal Revenue Service regulations are not favorable to employees. There is very little income tax benefit for an employee who uses an aircraft for the employer’s business. On the other hand, the tax code treats business owners very favorably.

Generous tax deductions are available when a business aircraft is utilized in a profitable business. Therefore, if an independent contractor or consulting / management arrangement can be negotiated with the buyer, it can facilitate the continued deductibility of a business aircraft.

Final regulations clarifying eligibility were issued in September, 2020. While new tax policy could seek to eliminate this incentive, it is unlikely to be passed as a first priority, given the need for continued stimulus, and unlikely to apply retroactively to purchases made before reform.

passes. This makes 2021 potentially a uniquely urgent time to identify and purchase the aircraft that meets the needs of your business. ADVOCATE CONSULTING LEGAL GROUP, PLLC. 3555 KRAFT RD. SUITE 240 NAPLES, FL 34105 AND 1300 N. WESTSHORE BLVD.

SUITE 220 TAMPA, FL 33607. SUZANNE MEINERS-LEVY, ESQ. (239) 213-0066. TAX DISCLOSURE. WE INFORM YOU THAT ANY U.S. FEDERAL TAX ADVICE CONTAINED IN THIS COMMUNICATION (INCLUDING ANY ATTACHMENTS) IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, FOR THE PURPOSE OF (I) AVOIDING PENALTIES UNDER FEDERAL TAX LAWS, SPECIFICALLY INCLUDING THE INTERNAL

REVENUE CODE, OR (II) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY TRANSACTION OR MATTER ADDRESSED HEREIN. PRIVACY POLICY. TERMS OF USE. Many clients have approached Aviation Tax Consultants in recent months to discuss aircraft tax planning strategies relating to the sale of their companies.

Whether the aircraft is part of the current business going through a sale, or a business aircraft purchase is contemplated after the sale of the business, the following considerations are critical in ensuring the deductibility of an aircraft as a business asset.

The final step in the acquisition process is to ensure that the state sales and federal tax planning and structuring do not interfere with operational limitations provided for in the Federal Aviation Regulations (the “FARs”). After all, no one wants to purchase an aircraft that cannot be legally flown.

Unfamiliarity with the FARs (and the corresponding body of administrative decisions and opinions), can create operational illegalities that can potentially compromise the optimized structure the buyer was striving for in the very beginning and leave the buyer stuck on the tarmac.

A smooth aircraft acquisition, along with an optimized operating structure, starts well before the first flight is ever taken. It is common for the owner to stay on with the new company to help with the transition or to continue to manage the company.

Whether the owner stays on as an employee or an independent contractor will create very different income tax implications. If an asset sale is negotiated, the business owner can maintain the existing corporate and aircraft ownership structure.

There is minimal disruption to the tax treatment of the aircraft if continued business use can be maintained by the taxpayer. Advocate will assist in the development of the best available operational structure based on your specific facts, balancing numerous concerns, including: compliance with FAA regulations;

minimizing exposure to Federal Excise Taxes; providing operational flexibility; achieving the maximum federal tax deductions that your situation allows; controlling liability to the extent possible; and minimizing the impact of state sales and use taxes. While a business aircraft may be an afterthought to a multimillion-dollar business acquisition, thoughtful planning at the transaction stage can allow a business owner to continue to enjoy significant income tax benefits from the use of a business aircraft after the sale of the business.

ADVOCATE CONSULTING LEGAL GROUP, PLLC. 3555 KRAFT RD. SUITE 240 NAPLES, FL 34105 AND 1300 N. WESTSHORE BLVD. SUITE 220 TAMPA, FL 33607. SUZANNE MEINERS-LEVY, ESQ. (239) 213-0066. TAX DISCLOSURE. WE INFORM YOU THAT ANY U.S. FEDERAL TAX ADVICE CONTAINED IN THIS COMMUNICATION (INCLUDING ANY ATTACHMENTS) IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, FOR THE PURPOSE OF (I) AVOIDING PENALTIES UNDER FEDERAL TAX LAWS, SPECIFICALLY INCLUDING THE INTERNAL

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If your company owns a business aircraft, a stock sale will likely require restructuring the existing aircraft ownership or spinning off the aircraft entity prior to the sale. This may result in the recapture of previously taken tax depreciation and immediate gain recognition. Gains are taxed as ordinary income to the extent of previously taken depreciation. Capital gains treatment is available if the aircraft has appreciated in value.

The Tax Advisor, working with the Legal Advisor, outlines record-keeping requirements, reviews compliance, and prepares aircraft tax returns. This includes bonus depreciation calculations, personal use computations, calculation of SIFL fringe benefit income and identifying potential expense disallowance associated with personal use.

If you use your aircraft for business you may be entitled to income tax deductions. The tax savings available depend on the nature of business use and the ownership structure. With this in mind, our main goal is to provide aviation “TLC”. By providing Tax, Legal, and Compliance services in a single engagement, we strive to streamline the process of acquiring a business aircraft and managing the tax concerns and compliance needs on a go forward basis. Each client is supported by a Legal Advisor, Tax Advisor and Compliance Specialist. This team is responsible for service delivery under the engagement.

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