Taxes & "Ordinary and Necessary"

[211º]

From Deloitte's website (an example of other website's as well):

• One of the most important questions that must be addressed is when the cost of private aviation is considered an ordinary and necessary business expense. If business is typically conducted locally, or business travel is between major cities that are regularly served by the major airlines, it may be difficult to justify the cost of private air travel as an ordinary and necessary expense of the business. A better argument exists when the business requires flights to out-of-the-way locations without ready commercial air service, the timing and duration of business flights are unpredictable, or personal security is a significant concern.

One of the sometimes (apparently) difficult things to substantiate to the IRS for the use of personal aircraft for business travel was the key phrase "Ordinary and Necessary".  With Covid-19, I wonder if it is now "more ordinary" to want to use a personal plane for business travel instead of being so close to other passengers in the closed air system of commercial airplanes?

Covid-19 also makes me wonder about the phrase "personal security" as it relates to the risk of being infected by other members of the traveling public - from the large airports and huge amount of personal interaction to sitting on a flight.

Any thoughts?

[Tim Jodice]

You simply need to back up why you use your aircraft for business. If you want to take your airplane to a destination that is serviced by airlines doesent matter as long as you make money or there is a true reason that you may make money there. 

People naturally have negative opinions about the IRS, I personally don't. Play by the rules and even if you get audited it. It will be quick and painless at least that was my experience. 

I believe the stories that you hear about are the people that have occupations that are can not make money flying around. Landscapers from new England don't make money flying to Naples FL for the weekend yet some people try to write it off.

[carusoam]

Are you concerned about the tax implications... or...

You work for a big company that has a travel policy...

Either way... select your method of travel that makes sense...
 

Some companies have odd requirements for using GA...

The IRS has a reimbursement policy similar to driving...   cents per mile.

There is no way anyone is going to know why you selected the method of travel...

They May notice that a 3AMU GA flight was used instead of a 0.3 AMU commercial flight... 

We have a tax/accounting guy around here...

Best regards,

-a-

[Tim Jodice]

5 minutes ago, carusoam said:

The IRS has a reimbursement policy similar to driving...   cents per mile.

That is the easiest way to do it but if fly you leave so much of legit deductions on the table.

I can't emphasize enough that you need a solid reason to write it off.

How does the IRS know how valuable your time is? The trip use my Mooney for I could accomplish with airlines. MHT to BWI to BOS to ACK. I have no idea how long that would take but I guarantee you that it would take more then the 50-60 minutes the Mooney does it in. In addition Cape Air/Southwest are not sitting there waiting for me when the day is over at different times depending on the work load that day. 

GA aircraft are the ultimate demonstration for speed and flexibility depending on where your are going and how fast your aircraft is.

All that said if I was going from MHT to MCO and could write it off (I can't) I would take Southwest.

Mid August I am Flying to Deland, FL to have a MT propeller installed and I won't write it off. One could argue that it a trip made for a business tool but I think that is in the gray area and it is a one time trip.

Write it all off IF it is truly used for business. 

[1964-M20E]

I'm not in any way an authority on IRS tax regulations.  However, if you have your own business you might consider having 2 businesses.  You have your primary business that makes your money and then you have a secondary business for the airplane.  The second business should earn enough money to cover all annual expenses for the plane and provide for a minimal profit.  The primary business the has a wet lease for the plane from the second business to be used for marketing, business development and sales calls.

All costs of maintaining and operating the plane are expenses to the second business and the lease is an expense to the primary business.  In theory it sounds good.

 

[carusoam]

Then there are business planes, that don’t get used for pleasure very often....

Let’s invite @Danb to see if he can shed light on business use of a GA /personal plane for business...

Dan has a few years in handling taxes and is an awesome Mooney pilot at the same time...  

Best regards,

-a-

[Danb]

8 hours ago, carusoam said:

Then there are business planes, that don’t get used for pleasure very often....

Let’s invite @Danb to see if he can shed light on business use of a GA /personal plane for business...

Dan has a few years in handling taxes and is an awesome Mooney pilot at the same time...  

Best regards,

-a-

Key, DOCUMENTATION , look for rules for personal use of automobiles. There’s a few good books on plane use. I’ve been through a couple audits not my plane, one good outcome one not so good. Little pigs get fed big pigs get slaughtered 

[Missile=Awesome]

23 hours ago, carusoam said:

Are you concerned about the tax implications... or...

You work for a big company that has a travel policy...

Either way... select your method of travel that makes sense...
 

Some companies have odd requirements for using GA...

The IRS has a reimbursement policy similar to driving...   cents per mile.

There is no way anyone is going to know why you selected the method of travel...

They May notice that a 3AMU GA flight was used instead of a 0.3 AMU commercial flight... 

We have a tax/accounting guy around here...

Best regards,

-a-

Question:  Why would the GA flight in your example by 3AMU’s?  We’re you just using this as an “audit” comparison on price?  I have worked for employers that were fine with using a personal aircraft for travel with reimbursement based on mileage.  Others?  NOPE.  It is liability concerns (killing myself or killing others and damaging property)...

[mike_elliott]

On 7/18/2020 at 9:23 AM, carusoam said:

The IRS has a reimbursement policy similar to driving...   cents per mile

I have heard tax consultants say you have to set up depreciation schedules, track personal vs bus usage, yada yada...Yet, clear as can be, the GSA has a mileage reimbursement rate for personal owned vehicles they allow. Lets just say a "friend" used the GSA guidance in statue miles.. Perhaps @danb could opine

https://www.gsa.gov/travel/plan-book/transportation-airfare-pov-etc/privately-owned-vehicle-pov-mileage-reimbursement-rates

 

[smwash02]

13 hours ago, 1964-M20E said:

All costs of maintaining and operating the plane are expenses to the second business and the lease is an expense to the primary business.  In theory it sounds good.

 

I considered doing this. The initial goal was to get around paying five figures in sales tax. In Texas, at least, when you buy the vehicle for the purpose of resale or lease the purchase is tax exempt. They collect their tax on the lease/sale of it. This would require you to track your sales tax liability and file/pay on schedule, which means your personal flights would also be taxed and give you an extra something to do each month. The law/CPA firm I talked to about it wanted north of $3,000 to set it up with a multiyear commit.

1 hour ago, mike_elliott said:

I have heard tax consultants say you have to set up depreciation schedules, track personal vs bus usage, yada yada...Yet, clear as can be, the GSA has a mileage reimbursement rate for personal owned vehicles they allow. Lets just say a "friend" used the GSA guidance in statue miles.. Perhaps @Dan could opine

https://www.gsa.gov/travel/plan-book/transportation-airfare-pov-etc/privately-owned-vehicle-pov-mileage-reimbursement-rates

 

My CPAs have told me that you could Section 179 it in one year if so inclined under current law. With our aircraft, the GSA rate seems high yet reasonable at the same time. From a few calculations I ran it came out to about $200/hour, which big picture is pretty fair, but will it withstand an audit. As a simple example if I fly to Sacramento it comes out to about $3,800 per the GSA reimbursement compared to $218 on American tomorrow morning.

On 7/18/2020 at 8:57 AM, Tim Jodice said:

Mid August I am Flying to Deland, FL to have a MT propeller installed and I won't write it off. One could argue that it a trip made for a business tool but I think that is in the gray area and it is a one time trip.

 

I'm not a tax professional, but if you own the plane and the business rents it from you, I think you're doing it the safe way. If the business owns it and this is for repair/maintenance, I'd argue its deductible. Slipping into the grey area... if the flight helps you 'maintain proficiency consistent with safety', it is also deductible. In your case bringing a safety pilot along doing hood work, holds, weather planning, high altitude operations, etc may allow this to qualify as a proficiency flight.

Here are a number of cases presented to the IRS and the Tax Court summarized by AOPA. Not all apply 1:1 with what's here, but it gives some good metrics for how the courts have ruled.

[Danb]

SM just look at the gross inconsistencies in the aforementioned court rulings, one could conclude it’s a total crap shoot. There form the 1980’s, the best advice would be to get an advanced ruling prior to filing. I’d consider utilizing the government rate if you could prove business usage. When I fly for business I only personally take fuel, for air lifeline, pilots and paws or any 501.c3 uses I use the government rate. I would not use any of my comments as any type of advice, reliance on my comments should not be considered as tax or financial advice. Moreover I would advise for you to get professional opinions from aviation tax professionals. 

[carusoam]

6 hours ago, Missile=Awesome said:

Question:  Why would the GA flight in your example by 3AMU’s?  We’re you just using this as an “audit” comparison on price?  I have worked for employers that were fine with using a personal aircraft for travel with reimbursement based on mileage.  Others?  NOPE.  It is liability concerns (killing myself or killing others and damaging property)...

from my experience getting corporate travel expenses getting approved by a corporate finance guy...

$300 flight expenses don’t raise any questions... Ordinary Mooney flight within a few states...

$3k flight expenses get somebody to look if there were better alternatives...
 

The stickiness comes when long distances are covered... there are discount flights And fist class flights... and with today’s Covid... who at the IRS has the ability to decide that you should take the discount flight?

For me, I had limits of what airlines I would travel/not travel on for business... never an issue. Not all airlines are the same.

The cool thing about corporate expense reports... they are weekly or so... you never go very far before getting feed back on most things...

For IRS tax issues, they are an annual event... you have a year of the same mistake collected and submitted, unless you seek guidance...

un/fortunately... each travel expense department has different rules to follow... some are better than others...
 

Some companies openly allow GA travel... some deny it... some ask for things like having the IR...

Some companies may have an upper limit when booking travel over 10amu... this requires a VP of finance on the pre-flight approval List....
 

As for the IRS... they are going to tax or not tax the amount spent... unlike the expense report where they are going to pay the whole amount...

Not any deep IRS experience.
 

PP thoughts only, not an accountant... or corporate finance guy, or tax attorney... (note for Marauder) 

Best regards,

-a-

[Marauder]

I would not use any of my comments as any type of advice, reliance on my comments should not be considered as tax or financial advice. Moreover I would advise for you to get professional opinions from aviation tax professionals. 

Now you’re sounding like a lawyer or Anthony.



Sent from my iPhone using Tapatalk Pro

[carusoam]

Chris,

There is at least one difference...

Dan really knows his stuff...

But, I am getting better with this cut and paste memory thing...  30k posts or so later...

Best regards,

-a-

[Ross Taylor]

One thing I took away from reading all the rulings that @smwash02 linked to is that, if you can pass the first hurdle of justifying the plane for business (regional sales, for example, seems easy) the tax court seems disposed to permitting IR training expenses so that you can more reliably conduct your business flights.  At least that's my read on it.

 

[BlueMooneyOverKentucky]

I’m not tax- or finance-savvy and I’m fine with that. I am a hobby pilot and pay for it from my personal entertainment budget. And, I fly cheap planes from cheap airports. So, I really don’t focus on the dollars until it’s time to buy a new GPS, tires, etc. 

I started working for a small (150 person) company 300 miles away in Chicago. In December and again in June I was invited to come to the office for a meeting and social event. They are excellent about covering all travel expenses, and expect most remote employees will be flying in. 
 

So I flew my plane up! :-) First time I’ve ever flown myself on business. I didn’t ask if I was allowed, because I’d rather ask for forgiveness than permission. (Now all the execs think I’m Superman and are asking about flying lessons)

So when it came time for my expense report, I just reported automobile miles from my house to the destination airport (Lansing, IL) and a pair of $50 Ubers to/from downtown Chicago.  The grand total was comparable to a commercial flight + taxi, so I was certain it wouldn’t be rejected. (My company is NOT uptight on any way)

I included a note explaining what I was doing so they wouldn’t get confused by the personal miles AND the Uber. 
 

So, maybe I left some money on the table, and maybe I’m missing some tax savings…but for me doing the paperwork and teaching/convincing my company about aviation is NOT my idea of fun. 
 

Perhaps more to the point, I don’t want to encourage my employer to ever tell me I’m not allowed to fly. Just having them cover my fuel so I can get my fix is good enough for me. 
 

Am I missing out on enough to make it worthwhile? I’m only good for about two trips per year.