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Deductions & credits
TurboTaxToddL, Please explain why Turobtax treats an aircraft is treated any differently than a private automobile. I believe the OP is correct.
I have exactly this question, and have for years used the GSA rate as a per mile rate, using the GSA instructions. The reason we use packages like Turbotax is to minimize the amount of time we waste in filing income tax. The question is not how we should do it, that is answered. The question is simple: how do we use Turbotax to use this value for this vehicle?
Concerning your comment on the GSA vis a vis the IRS: The IRS land vehicle mileage rates exactly parallel the GSA rates and have for as long as I can remember.
Therefore, it would be reasonable for a Tax Court to follow the same pattern, and I don't think the IRS would be in a favored position with that court if it tried to argue differently, particularly when the GSA likely understates the actual cost of flying per mile. The reason we use standard rates for occasional use of private automobiles in furtherance of business and take the standard mileage deduction is for convenience and efficiency. So it is with small private and occasionally used aircraft.
Concerning your comment on re the "proper tax approach to aircraft, is to use the actual operating costs..." I submit that this is also precisely true for private automobiles too. The reason we don't is it is simply too expensive in terms of time and effort to do so, which is why the IRS allows us to use "standard mileage deductions," which they most likely, based on the historical correlation with the GSA POV rates, obtain from the GSA analyses and permit us to use. I respectfully submit that the IRS would be hard pressed to argue a legal position that using GSA data to determine standard land vehicle mileage rates in lieu of actual operating costs is somehow different than using the same data in air vehicles.
Concerning your thoughts on whether GSA rates reflect the cost of the aircraft, my operating costs (very approximated) vary significantly on how many total flight hours I fly (indirect fixed expenses), as well as my direct expenses. Thus, the GSA rate is a reasonable approximation, and even if not, I am willing to accept a small increase in taxes, compared to the cost of my time and mental well being of maintaining even more records and exposing myself to additional work effort and risk of errors. With the GSA standard rate, I simply take the mileage and multiply it by the number and I'm done. This is all we are asking, and why we buy programs like TurboTax.
The NBAA is primarily concerned with large corporate aircraft operators, with costs expressed in hundreds or thousands per hour, not small single engine operators, such as the OP and myself. The reason we use standard mileage rate deductions for automobiles is much the same as we would for privately owned aircraft. It is simply not worth the extra record keeping effort to do any differently, despite the fact we might be able to save a few bucks by keeping the actual maintenance records. We are talking about a $30k asset, not a $3M asset with the cost of a pilot and copilot, corporate flight department, etc, (which is much more common in the NBAA's picture). The first word of the above referenced web site state, "Aircraft that are owned and operated by businesses." The OP (and I, for sure) are using a personally owned aircraft for an occasional business trip., much the same way I would use my personal car. The aircraft in question is not owned by the business, not operated by the business, and is not leased to the business.
I do not wish to claim depreciation expense for my private aircraft, for that would entail yet another set of complex record keeping requirements, and it would be improper under a variety of rules, not the least of which is the aircraft is primarily a personal pleasure aircraft and is not insured as a business asset, with the insurance coverage only for "occasional flights in furtherance of a business, incidental to the ordinary pleasure and personal business use of insured aircraft." The increased cost of insurance for a aircraft used primarily in a business is more than 5 times the cost for the same liability and hull limits. Yes, it's deductible too, but the deduction does not offset the cost differential. Especially of the aircraft is used less than 10% for business purposes.
Further there are other ramifications for listing a personal aircraft as a depreciable business asset, that being, recapture of personal use. If the use of an aircraft for personal activities is 90% of the flight hours and business only 10%, then the business would have to charge back the costs of personal operations of the aircraft, and pay more tax on the business income from the personal/private use of the aircraft (imputed income?). For a 50 year old aircraft, with a book value of $35k, depreciated on a 5 year schedule, you are talking less than $7,000 over 5 years, then what? It's fully depreciated.
So, in many cases, it makes much more sense to not use the NBAA's recommendations for aircraft PRIMARILY used for pleasure and private (non-deductable) business, and only use the GSA flat rate for deductable business use of the aircraft. My aircraft insurance increase would more than outweigh any depreciation expense, and that expense would be subject to recapture on sale of the asset, as well, incurring yet another tax.
There is yet another concern for declaring a personal aircraft a business asset. The IRS Chief Counsel ruled in 2012, that the PRIMARY use of an aircraft is governing. This means that using your recommendation could create problems if an aircraft owner elected to follow NBAA's advice inappropriately, depreciated the aircraft, expensed the hanger, maintenance, inspections etc, for a couple of business flights a year consuming 20 flight hours on an aircraft flown for personal and pleasure use of 200 hours per year. It is far harder for an auditor to argue with a standard GSA rate which can easily be demonstrated to understate the actual per mile cost of the aircraft, if necessary, even though the GSA and the IRS are separate agencies, I suspect the Tax Court would be at least interested in hearing how the GSA arrived at its numbers.
So, regardless of Turbotax's thoughts on this matter, as a new user, I am going to use the GSA rate, and now the question is how do I do it? This year it is $1.15/statute mile, regardless of the cost to operate the aircraft.
I have exactly this question, and have for years used the GSA rate as a per mile rate, using the GSA instructions. The reason we use packages like Turbotax is to minimize the amount of time we waste in filing income tax. The question is not how we should do it, that is answered. The question is simple: how do we use Turbotax to use this value for this vehicle?
Concerning your comment on the GSA vis a vis the IRS: The IRS land vehicle mileage rates exactly parallel the GSA rates and have for as long as I can remember.
Therefore, it would be reasonable for a Tax Court to follow the same pattern, and I don't think the IRS would be in a favored position with that court if it tried to argue differently, particularly when the GSA likely understates the actual cost of flying per mile. The reason we use standard rates for occasional use of private automobiles in furtherance of business and take the standard mileage deduction is for convenience and efficiency. So it is with small private and occasionally used aircraft.
Concerning your comment on re the "proper tax approach to aircraft, is to use the actual operating costs..." I submit that this is also precisely true for private automobiles too. The reason we don't is it is simply too expensive in terms of time and effort to do so, which is why the IRS allows us to use "standard mileage deductions," which they most likely, based on the historical correlation with the GSA POV rates, obtain from the GSA analyses and permit us to use. I respectfully submit that the IRS would be hard pressed to argue a legal position that using GSA data to determine standard land vehicle mileage rates in lieu of actual operating costs is somehow different than using the same data in air vehicles.
Concerning your thoughts on whether GSA rates reflect the cost of the aircraft, my operating costs (very approximated) vary significantly on how many total flight hours I fly (indirect fixed expenses), as well as my direct expenses. Thus, the GSA rate is a reasonable approximation, and even if not, I am willing to accept a small increase in taxes, compared to the cost of my time and mental well being of maintaining even more records and exposing myself to additional work effort and risk of errors. With the GSA standard rate, I simply take the mileage and multiply it by the number and I'm done. This is all we are asking, and why we buy programs like TurboTax.
The NBAA is primarily concerned with large corporate aircraft operators, with costs expressed in hundreds or thousands per hour, not small single engine operators, such as the OP and myself. The reason we use standard mileage rate deductions for automobiles is much the same as we would for privately owned aircraft. It is simply not worth the extra record keeping effort to do any differently, despite the fact we might be able to save a few bucks by keeping the actual maintenance records. We are talking about a $30k asset, not a $3M asset with the cost of a pilot and copilot, corporate flight department, etc, (which is much more common in the NBAA's picture). The first word of the above referenced web site state, "Aircraft that are owned and operated by businesses." The OP (and I, for sure) are using a personally owned aircraft for an occasional business trip., much the same way I would use my personal car. The aircraft in question is not owned by the business, not operated by the business, and is not leased to the business.
I do not wish to claim depreciation expense for my private aircraft, for that would entail yet another set of complex record keeping requirements, and it would be improper under a variety of rules, not the least of which is the aircraft is primarily a personal pleasure aircraft and is not insured as a business asset, with the insurance coverage only for "occasional flights in furtherance of a business, incidental to the ordinary pleasure and personal business use of insured aircraft." The increased cost of insurance for a aircraft used primarily in a business is more than 5 times the cost for the same liability and hull limits. Yes, it's deductible too, but the deduction does not offset the cost differential. Especially of the aircraft is used less than 10% for business purposes.
Further there are other ramifications for listing a personal aircraft as a depreciable business asset, that being, recapture of personal use. If the use of an aircraft for personal activities is 90% of the flight hours and business only 10%, then the business would have to charge back the costs of personal operations of the aircraft, and pay more tax on the business income from the personal/private use of the aircraft (imputed income?). For a 50 year old aircraft, with a book value of $35k, depreciated on a 5 year schedule, you are talking less than $7,000 over 5 years, then what? It's fully depreciated.
So, in many cases, it makes much more sense to not use the NBAA's recommendations for aircraft PRIMARILY used for pleasure and private (non-deductable) business, and only use the GSA flat rate for deductable business use of the aircraft. My aircraft insurance increase would more than outweigh any depreciation expense, and that expense would be subject to recapture on sale of the asset, as well, incurring yet another tax.
There is yet another concern for declaring a personal aircraft a business asset. The IRS Chief Counsel ruled in 2012, that the PRIMARY use of an aircraft is governing. This means that using your recommendation could create problems if an aircraft owner elected to follow NBAA's advice inappropriately, depreciated the aircraft, expensed the hanger, maintenance, inspections etc, for a couple of business flights a year consuming 20 flight hours on an aircraft flown for personal and pleasure use of 200 hours per year. It is far harder for an auditor to argue with a standard GSA rate which can easily be demonstrated to understate the actual per mile cost of the aircraft, if necessary, even though the GSA and the IRS are separate agencies, I suspect the Tax Court would be at least interested in hearing how the GSA arrived at its numbers.
So, regardless of Turbotax's thoughts on this matter, as a new user, I am going to use the GSA rate, and now the question is how do I do it? This year it is $1.15/statute mile, regardless of the cost to operate the aircraft.
May 31, 2019
7:32 PM
