Personal aircraft use for owner's business.

[GSchuld]

I have read through several threads and bits on the net regarding the use of personal aircraft for corporate travel, but my situation is different. I am involved in real estate. I have a real estate license(legally an independant contractor) and I do a decent amount of investing in the real estate field as an individual. I will be forming an LLC soon as I have about reached(exceeded really) my personal threshold for lawsuit liability.

As an independent contractor and a "real estate profesional" in the eyes of the IRS, there are some favorable rules for us regarding what I can deduct as business expenses. My curiosity is involving my new set of rules regarding the to be formed LLC that officially puts me in business as a real estate investor. I currently live on the Jersey Shore, own several properties here, as well as a large chuck of land in Vermont near Okemo that will be sectioned off and most of it sold off over the next bunch of years. I will most likely keep the remaining chunk of acreage for many years to come, that will include a residence that will be active the entire time as a rental property. The property just happens to be within minutes from a fairly large well maintained regional airport(in Springfield)

My wife and I have also been seriously considering a move to Florida in a few years. If we do that, I will almost certainly retain atleast two of the investment properties here in NJ, one of which is a nice seperated two family that I would be able use during the summers if we decide to spend the sailing season up here, plus at any time I wish to fly up for any reason. That's basically where I'm coming from.

So say we move to Florida. Aside from whatever I do real estatewise there, I will own investment property in both NJ and Vermont. Would it be fair to say that I would be able to deduct much of my personal aircraft travel and maintenence expenses as pre tax business related traveling expenses similar to what I am very familiar with regarding vehicle travel for the same purposes? Even though I would have family to visit in Jersey, I would certainly be visiting and checking in to my investment property, especially since I would be staying in one of them while I'm up here. Same goes for Vermont, though some of the reason for going could be considered for entertainment purposes, a substancial part of any trip up there is for direct business reasons. It would seem that both locations fall pretty clearly into the realm of business related travel.

Another thing that is commonplace with real estate investors is the ability to consider a fairly wide range of other expenses as business related, and as such, considered pre tax expenses. Such as personal travel. The burdon appears to be fairly small, requiring only a modest amount of the actual time spend visiting one place to be devoted to true busines activities. I am always interested in looking for potential areas to invest in. And by my very nature, whenever I go somewhere new, I spend a bunch of time researching and checking out the investment potential of the area. It is usually the part I enjoy the most when away(I have issues, I know). I tend to think of any new area as some sort of recon mission for a potential future deal.

So in reality, everywhere I travel to, I seem to very legally fit into the IRS's definition of business travel, and I routinely bring home the research documentation to put in my files to prove it. I have yet to claim any of my (mostly)personal travels as business expenses, but once the LLC is formed, it sure seems to make sense. With a plane on hand, my wife and I are looking forward to making lots of trips together as we both work for ourselves and have flexible schedules. If we are in Florida, there will be many trips back and forth from there to NJ(also within 5 minutes from the local airport) and Vermont alone, never mind everywhere else we'd like to scoot off to.

I have another meeting scheduled with my accountant tomorrow afternoon, but I'd like to get some opinion for here if possible before hand to see if my current thinking on the subject makes sense. I try not to go out of my way to bend the tax rules in my favor and have skipped out on plenty of things that I could have likely easily gotten away with in the past, but this type of use appears to fit squarely into a business expense given my situation.


George

[jhphillips]

Sounds reasonable to me, but my signature won't be on your tax return.

[CNEJR]

From what I have seen in my past career most people are not aggressive enough in what are truly tax deductible items. Accountants are sometimes "too wimp" in order to make a case for their clients and deduct the items.

[flytoboat]

Disclaimer: **I am not a tax expert and haven't been audited**
I certainly believe that you should take all expenses allowed. Having said that, if the real intent of the trip is pleasure (i.e. take the wife and stay in personally owned residence) you might have a problem convincing an auditor. Perhaps if you actually do some business work you could deduct a percentage of the trip. Depends on your willingness to fight the IRS if audited...

[GSchuld]

Don,

The residence in NJ is an investment property. It's a legal two familiy residence and one part is rented year round. Collecting rent, checking on the maintenance issues, inspecting the property as a whole, all considered business related. And in actuality, it would be likely that when I do travel up, a good part of the reason for the trip would be for dealing with some level of property related issues. The visiting family issue may very well be an example of extra justification for the trip. I have taken probably 8 round trips to Vermont(driving) in the last year alone that had me there for less than 24 hrs. And it was just about all business. Just a round trip to meet people/engineers/lawyers/township officials, etc. and get back home to get on with other things. Having to drive at night to miss the traffic is getting old!

I agree, I certainly could have pushed the "greyish areas" in the past regarding my taxes, but frankly, most of my real world overal "income" isn't really all that taxable according to the tax code anyway(real estate growth based). I have a pretty good deal really overall, so I am reluctant to make myself any more of a target for the IRS police than necesary. As I have a few friends that went trough H@(( and back dealing with audits, it's something I can justify letting a bit go every year if it pertains to even vaguely shady or questionable reporting. If I take advantage of a tax rule, I'd like to make sure that it is as solid and easily defensible as possible.

George

[Geico266]

You are an active, licensed real estate agent / investor with property in several locations. Any travel for business with these or prospective properties, looking at prospective investments, market research, interviewing clients, ect. is deductible, including depreciation of the aircraft or actual maintenance expenses including fuel. Any training flights / training you deem necessary as PIC to remain current is also deductible.

The more you deduct the better your chances of being audited, but in your business you are going to be audited anyway. Get a good bookkeeper and an aggressive tax accountant that is licensed to appear in front of the IRS on your behalf. If audited, DO NOT go to the audit on your own accord, even with your accountant. Let your accountant represent you, they can and will do all the work for you. Only appear if you are served a subpoena, and after you have a tax attorney at your side. The IRS auditors are "graded" on their ability to recover "X" amount during any one audit. They can and do use lies, deceit, rumors, and ANYTHING to try and trick you into just saying something wrong. Remember, if audited, you are guilty of tax evasion and fraud until your accountant and tax lawer can prove you innocent.

Your best defense is get a good bookkeeper and tax accountant on line now.

Good luck with the investing, should be a great time to fly & buy.

[GSchuld]

Thanks for the thoughts. It's funny you mentioned the qualifications of the acountant. I am in the process of trying out a new one for the first time in many years. My current guy, though very capable for general work, is just not keeping up. The new one appears to be very well versed in the special needs(as in, we're all mildly retarted) of real estate investors. Several of her clients are much higher up the RE investor food chain than I am, actually one of them recommended her to me as being very thorough and capable of handling IRS audits. I will though have a few specific questions to ask her based on your suggestions. Thanks. I just get so tired of all the paperwork. Honestly, it's the main reason why I have resisted going the full LLC route up until now. But I have too much out there held personally in my name that is so easily attacked by lawsuit that I can't afford to delay any longer. At least the extra deductions will potentially help easy the pain of the extra hastles/expenses.

All suggetions are welcome, especially regarding specific ideas or questions to ask my new victom, umm ....accountant. She's gonna love me

George

[az_gila]

You original posting did not specify if you were considering a Vans aircraft - but I sort of assume you are...

If you have an Experimental aircraft, this statement, or something similar, will be in your Operating Limitations --

(1) No person may operate this aircraft for other than the purpose of meeting the requirements of § 91.319(b) during phase I flight testing, and for recreation and education after meeting these requirements as stated in the program letter (required by § 21.193) for this aircraft. In addition, this aircraft must be operated in accordance with applicable air traffic and general operating rules of part 91 and all additional limitations herein prescribed under the provisions of § 91.319(e). These operating limitations are a part of Form 8130-7, and are to be carried in the aircraft at all times and be available to the pilot in command of the aircraft.

This now becomes an issue between you (and your LLC) and your insurance company if anything should happen.

This is entirely different from the IRS tax issues, and this limitation is the basis of our relative ease to build and fly Experimental aircraft in the US compared with other countries around the world.

[GSchuld]

az_gila,

Actually, though I have great respect and confidence in the Vans Aircraft line and considered one seriously, I have settled on building a composite aircraft. My background has been in profesional high end custom wood and composite boatbulding for many years. I have all the tools/experience to go composite, and in the end, that is the construction style that I really enjoy the most. ****, I have the tooling on hand to built a full sized copy of the spruce goose! I have worked with metal plenty, but it just doesn't do it for me in the end as a main construction material. There's just something about those epoxy fumes and vacuum bagging pumps I guess! I spend a bunch of time here because the knowledge base is fantastic and I enjoy the community here more than any other around. Hope I didn't just wear out my welcome.

Thanks for the operating limitations mention. Something to look into. I have heard of many people using their RVs and other for work related travel expenses, so frankly, I had just assumed that it would not be a concern as long as I was not flying clients/etc. for hire or invlove the aircraft in a part of my business other that strictly for travel to and from. And it would be strictly for myself, or myself and the wife, depending on the trip and purpose. I'd like to hear other opinions regarding whether a homebuilt can be used for my purposes(business travel regarding own personal investment LLC) without breaking any operating limitations.

I'd also be curious whether anyone thinks it might be at all advantageous the have the plane owned by the LLC(whether the real estate investment LLC, or a seperate one for the plane) instead of me personally.

I know that I can take a trip to the Bahamas, flying commercial, spend a week cruising around researching the possibility of a future investment, and consider the bulk of the trip as a pre tax business expense(including airfare). As long as I can provide a sufficient level of documentation (reasonable to the IRS) that a good portion of the time spent was truely for real estate research purposes, it appears to be fully within the regs. I certainly know plenty of people in my "line of work" that have done just this for years, and I have spoken with an IRS rep in the past about the subject with a green light answer. Hopefully my advice has not been outdated, so I reserve the right to be wrong if the rules have changed on me(as they tend to do). I'm just not sure about the specifics related to a homebuilt experimental aircraft.

George

[DBone]

I'm not an accountant, but I do own my own biz plus have dabbled in the real estate market as well. I have gone round and round with various tax professionals on this, so here's my 2 cents...

Unless somebody has real world IRS audit experience with personal plane used for biz type of cases, their opinion is all you're going to get, and you know the saying about opinions...

In my mind, here's what I've settled on. In order for something to be deductible as a biz expense, the IRS says it has to be "ordinary and necessary" along with "reasonable". That phraseology allows the IRS to call any expense into question. You can deduct the cost of your trip to NJ, but can you defend it to a human sitting across the desk from you? That?s what I use as my litmus test. In other words, if you are trying to deduct $575 for a trip to NJ to fix a toilet that you could have paid a plumber $75 to fix, the IRS is going to have a problem with that, because it doesn?t make good business sense.

One of the things the IRS will look at is the cost of an airline seat for the same trip. If Southwest flies there for $49 each way, that will be one strike against you. So if you?re going to say you just found out this morning that you have to be in NJ for a 2pm meeting and the airline seat would have cost $1200, then you can deduct your $575 for the trip in your plane. But you better be able to prove that being there at 2pm was both "ordinary and necessary". There are obvious advantages to flying yourself, but it has to be within reason. You can take into account commercial airport waits, a hotel room vs being able to come home same day, and no rental car or taxi because you landed 2 miles from your property. All those things would be on your side if an expense got questioned.

Last thing I'll say about using a personal airplane for biz use... EVERYBODY I've ever asked says that it makes you a target for an IRS audit because the dollars are usually big and it's something very easily used for pleasure. I've never seen any hard evidence, though, just opinions.

A final thought about your question on having an LLC own the plane. There is no right or wrong answer, because everybody?s in a different situation. But what I?ve found through talking to many people is that having a corporation own the airplane is not the liability ?magic pill? isolator that a lot of people think it is. The problem is if you?re going to be the only one flying it, if something should happen, you will be sued as the PIC anyway, regardless of who owns it. If the plane rolls away from a tie down spot when you?re 100 miles away from it, I?m sure you?d be named in the lawsuit because you should have triple checked your tie down chains. Especially with your assets, the opposing lawyer will surely find a way to pull you into the lawsuit. Unfortunately, this is the world we live in.

Just more food for thought?