Aircraft Expense Tax
Aircraft Expense Tax and what it means for you
Utilizing a private jet for business purposes or to carry out your business may entitle you to receive tax incentives and help you to save money. You may be able to deduct costs associated with or attributed to one or all of the following: aircraft maintenance, fuel, hangar fees, landing fees, insurance, and depreciation.
Internal Revenue Code (IRC) Section 162 reads like this "here shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business . . . ."
As it’s written for the use by the IRS which is anything but definitive in their defining of expense parameters, we will try to provide some insight into what will or will not qualify as a deductible expense. In some reports detailing the specifics regarding this tax law, some operators and air carriers have referred to previous precedents or cases in which the law was applied to the extent of a favorable result. To hear more about the interpretation of the IRC, you may wish to consult a professional.
To learn more about what type of things count as an aircraft operations expense, contact agents at 1-888-722-0776.
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Terms and conditions
Stipulations are that yourself or your corporation must be using the aircraft for the expressed purpose of carrying out a business or a trade (activity in pursuit of profit or as a livelihood). A trade or business may be considered an individual pursuit, the result of a partnership or corporation.
You may be asked to provide evidence to support the notion that the operating expenses you have incurred are “ordinary and necessary.”A loose interpretation of what is considered ordinary regarding operating costs would potentially include the use of the aircraft as a common practice. Or, is the aircraft utilized by executives regularly to conduct business? If so, then it is commonly used, or it is common practice to use it.
What may be considered a necessary expense may be more of a difficulty to prove. In the past, courts have indicated that an expense that is helpful and business appropriate may be considered a necessary expense. In an effort to demonstrate that your aircraft is helpful and business appropriate, you will need to show a direct connection to how each expense served to help in your endeavor and how it was appropriately used in this manner relative to your business type.
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Tips for helping to establish the validity of your necessary expenses
If you are an employee who is using the aircraft to carry out your duty for your employer, make certain to get their prior approval for the use of the jet.
Prepare documentation to demonstrate the need for private aircraft use as opposed to for example commercial air travel. You could potentially say that you were needing to take a product or replacement part to a factory your company owns in an area that commercial airlines do not fly to directly.
Be prepared for the IRS to audit you. Have all of your expenses itemized and maintain proper accounting to show without a doubt that the expenses you have incurred were of benefit to the company or business pursuit overall.
To hear more about aircraft operations and the lease of business jets call 1-888-722-0776.
Need to know info
It is imperative that if you should elect to file for exemptions and deductions you seek the help of a professional to ensure that you file the necessary paperwork that corresponds to your particular situation. For example, as a singular employee looking to deduct expenses, you may need to file a form 2106. You may be asked to itemize specific expenses. Some expenses will be termed miscellaneous and will be considered exempt from being claimed. You may only receive a small incentive deduction (equal to or less 2% based on your AGI) for various expenses relating to aircraft operations.
Corporations will report their expenses on U.S. Corporate Income Tax Return Form 1120. Shareholders in a Subchapter S-corporation will list aircraft expenses on Form 1120S and your share of income and expenses will be reported on a Schedule K-1 Form 1120S, which should provide details about how to report your share of the S-corporation's income, credits, and deductions.
Partnerships will report on Form 1065 U.S. Partnership Return of Income, with individual partner shares of income, credits, and deductions reported on a Schedule K-1 Form 1065 and self employed expenses will be reported on a Schedule C.
It’s important to consider that as there are no clearly defined paths to take, its wise to consult a tax professional before filing your aircraft expense reports with the IRS.