When you claim business expenses, they can help you reduce your overall tax burden. Corporate and private jet owners can obtain significant tax benefits from their aircraft ownerships, particularly if they maintain proper usage records.
But not all benefits are readily apparent. Here’s a guide to making sure you recoup all available deductions:
Don’t forget depreciation
Since depreciation is a tax benefit, private jet owners should be aware of the Modified Accelerated Cost Recovery System (MACRS). If you use your private jet for business purposes, MACRS is an avenue to deduct more depreciation costs in the first years of ownership.
The key to MACRS for jet owners is the Protecting Americans from Tax Hikes Act. This is the final year to take full advantage of legislation benefits with up to 50% bonus depreciation available.
The IRS will pare down benefits over the next two years with a phase down complete after 2019. Of course, to be eligible, your jet must be new and you must use it predominantly within the United States for business purposes under IRS criteria.
What is ordinary and necessary?
While the phrase “ordinary and necessary” persists in IRS rulings pertaining to tax deductions, a specific definition is elusive. Chances are if you own a private jet, it saves you time and money. You may work at company with customers in rural areas not served by larger airports. As a company executive, work with your CPA to determine if you can demonstrate that you’ve saved time and money owing a private jet as opposed to relying on commercial options.
For MACRS deductions, at least 50% of the plane’s use must be for business purposes. But there’s a variety of other tests the IRS uses that you should consult your CPA about.Obtaining tax benefits means you need to ensure you properly document all expenses associated with jet usage. You need to record proper flight logs showing starting and finishing mileage, fuel consumption, and travel purposes. Thorough documentation minimizes the likelihood of the IRS denying deductions.
Business owners should also maintain accurate fuel purchase, maintenance, and other operating expense records associated with corporate jet use. You should provide your accountants with these records on a regular basis as they may need time to draw comparisons with commercial flights for you to take advantage of maximum tax deductions.
Private jet owners should also be aware the IRS will likely deny deductions on businesses consistently showing losses: If you show too many years of losses, the IRS will rule your business is a hobby and, therefore, the expenses not deductible.
Business structure and private jet ownership
Another option to discuss with your CPA is your business structure. In some instances, you may obtain more tax benefits by structuring your business as an LLC instead of an S-Corporation or C-Corporation. Your corporate structure plays a role in your overall tax rate and which deductions you may be able to take, so this is worth exploring.