California corp.

[Robert M. Gary]

My graduate law class just covered legal entities. By luck my partner
and I had registered our Mooney in a Mutual Benefit Corp (C-corp). Had
we not, the attorney teaching the class said we would probably be
considered "Partners" under the eyes of the law. If we had just put
the plane in our names we would have been "Partners". As near as I can
tell "Partners" is the laws punishment for not doing anything else,
"Partners" happens automatically by default. "Partners" is the worse
case scenario because it comes with unlimited liability. If your
partner is driving to the airport and hits a dog, the dog's owner can
sue you and take your house.
In some states LLCs are a good way to establish. However, in
California LLCs have a minimum state tax of $800/year. Some people
tried to get smart and create their LLCs in other states. Well,
California now has a business fee for out of state LLCs of, guess
what, $800/year. :) Its kind of like sales tax. They can't charge you
8% for a plane you bought out of state, but they can charge you an 8%
"use tax" when you get it here (although there are some ways to avoid
that).
In anycase, I guess we got dumb lucky when we decided to create a
corporation. The only downside is that we have to have an annual
meeting, save meeting minutes, have officers, and report taxes
(although the corp's taxes are zero).

-Robert, living and learning

[Rob Thomas]

I chose to go with a LLC and deal with the $800 excise tax every year. It's
really silly that they charge that much for the "opportunity to conduct
business within California." However, the LLC provides me with protection
and allows me not to have to deal with maintaining two entities for tax
purposes (my LLC is where I make my income BTW). The $800 is also
deductable, so depending on your tax bracket you should recoup $200 or so.

The California C-Corp has a minimum tax of $800, so any year that it doesn't
bring in income, you still owe $800. Many folks get burned by that by not
properlyl shutting down the C-Corp after they are done with it and the State
merilly charges $800 and fees and penalties. Then someone is shocked to see
a $5000 bill from the State a few years down the road.

r.

"Robert M. Gary" > wrote in message
om...
> My graduate law class just covered legal entities. By luck my partner
> and I had registered our Mooney in a Mutual Benefit Corp (C-corp). Had
> we not, the attorney teaching the class said we would probably be
> considered "Partners" under the eyes of the law. If we had just put
> the plane in our names we would have been "Partners". As near as I can
> tell "Partners" is the laws punishment for not doing anything else,
> "Partners" happens automatically by default. "Partners" is the worse
> case scenario because it comes with unlimited liability. If your
> partner is driving to the airport and hits a dog, the dog's owner can
> sue you and take your house.
> In some states LLCs are a good way to establish. However, in
> California LLCs have a minimum state tax of $800/year. Some people
> tried to get smart and create their LLCs in other states. Well,
> California now has a business fee for out of state LLCs of, guess
> what, $800/year. :) Its kind of like sales tax. They can't charge you
> 8% for a plane you bought out of state, but they can charge you an 8%
> "use tax" when you get it here (although there are some ways to avoid
> that).
> In anycase, I guess we got dumb lucky when we decided to create a
> corporation. The only downside is that we have to have an annual
> meeting, save meeting minutes, have officers, and report taxes
> (although the corp's taxes are zero).
>
> -Robert, living and learning

[Cub Driver]

>The $800 is also
>deductable, so depending on your tax bracket you should recoup $200 or so.

Er, you're not deducting a business expense on your personal tax
return, are you?



all the best -- Dan Ford
email: (requires authentication)

see the Warbird's Forum at www.warbirdforum.com
and the Piper Cub Forum at www.pipercubforum.com

[Rob Thomas]

Absolutely.

The $800 goes directly on Schedule C of my personal tax return. My LLC is
treated as a sole-proprietership by California because I'm the only member.
So, I get the legal protection of a C-Corp and the paperwork ease of a
sole-proprietership.

r.

"Cub Driver" > wrote in message
...
>
> >The $800 is also
> >deductable, so depending on your tax bracket you should recoup $200 or
so.
>
> Er, you're not deducting a business expense on your personal tax
> return, are you?
>
>
>
> all the best -- Dan Ford
> email: (requires authentication)
>
> see the Warbird's Forum at www.warbirdforum.com
> and the Piper Cub Forum at www.pipercubforum.com

[Tony Cox]

"Rob Thomas" > wrote in message
...
> Absolutely.
>
> The $800 goes directly on Schedule C of my personal tax return. My LLC is
> treated as a sole-proprietership by California because I'm the only
member.
> So, I get the legal protection of a C-Corp and the paperwork ease of a
> sole-proprietership.
>
> r.
>

How does that work exactly? I'm not familiar with LLC's, except
that from what I remember you can opt to have them treated as
either partnerships or corporations for tax purposes.

I don't understand how you can pass the $800 back to your individual
return unless you're treated as an S-corp for tax purposes.

[Mike Rapoport]

Either his sole proprietorship owns the LLC or the LLC *is* the sole
proprietorship. In the latter case, I'm not sure why he isn't filing an
1120 return.

Mike
MU-2

"Tony Cox" > wrote in message
hlink.net...
> "Rob Thomas" > wrote in message
> ...
> > Absolutely.
> >
> > The $800 goes directly on Schedule C of my personal tax return. My LLC
is
> > treated as a sole-proprietership by California because I'm the only
> member.
> > So, I get the legal protection of a C-Corp and the paperwork ease of a
> > sole-proprietership.
> >
> > r.
> >
>
> How does that work exactly? I'm not familiar with LLC's, except
> that from what I remember you can opt to have them treated as
> either partnerships or corporations for tax purposes.
>
> I don't understand how you can pass the $800 back to your individual
> return unless you're treated as an S-corp for tax purposes.
>
>

[Tony Cox]

"Robert M. Gary" > wrote in message
om...
> My graduate law class just covered legal entities. By luck my partner
> and I had registered our Mooney in a Mutual Benefit Corp (C-corp).
>

What is a "Mutual Benefit Corp"? A non-profit? As I remember, you'll
need to file more papers to avoid the minimum franchise tax of $800 (CA),
and will need to continue to pay that fee until your status is approved
(which can take over a year).

> Had
> we not, the attorney teaching the class said we would probably be
> considered "Partners" under the eyes of the law. If we had just put
> the plane in our names we would have been "Partners". As near as I can
> tell "Partners" is the laws punishment for not doing anything else,
> "Partners" happens automatically by default. "Partners" is the worse
> case scenario because it comes with unlimited liability.
>

There are other ways of protecting yourself against liability than forming
a corp. The extra insurance is often cheaper than messing with the
paperwork of maintaining a corp (if you can get a 'flat' policy).

> If your
> partner is driving to the airport and hits a dog, the dog's owner can
> sue you and take your house.

Perhaps the next class will deal with "piercing the corporate veil".
You might not be as enthusiastic about corporate ownership after
that.

[Rob Thomas]

Single entity LLC's (one director, me) are treated *exactly* like sole
proprietorships by the IRS. However, they are still afforded the same legal
protections as a C-Corporation. It *used* to be that LLC's were treated as
partnerships, or the LLC could elect to be treated as a C-Corp for tax
purposes. Those regulations changed a few years ago.

I file a 1040, along with a Schedule C (profit/loss from business) just as
any other sole proprietorship would.

Just a side note, all of my income is produced through my LLC, so it's not
just a holding company for an aircraft. I know some people set them up that
way, but just wanted to point out that mine is not setup that way.

r.

"Tony Cox" > wrote in message
hlink.net...
> "Rob Thomas" > wrote in message
> ...
> > Absolutely.
> >
> > The $800 goes directly on Schedule C of my personal tax return. My LLC
is
> > treated as a sole-proprietership by California because I'm the only
> member.
> > So, I get the legal protection of a C-Corp and the paperwork ease of a
> > sole-proprietership.
> >
> > r.
> >
>
> How does that work exactly? I'm not familiar with LLC's, except
> that from what I remember you can opt to have them treated as
> either partnerships or corporations for tax purposes.
>
> I don't understand how you can pass the $800 back to your individual
> return unless you're treated as an S-corp for tax purposes.
>
>

[Rob Thomas]

The LLC is the sole proprietorship. 1120? I don't file that. 1040 with
Schedule C.

r.

"Mike Rapoport" > wrote in message
hlink.net...
> Either his sole proprietorship owns the LLC or the LLC *is* the sole
> proprietorship. In the latter case, I'm not sure why he isn't filing an
> 1120 return.
>
> Mike
> MU-2
>
> "Tony Cox" > wrote in message
> hlink.net...
> > "Rob Thomas" > wrote in message
> > ...
> > > Absolutely.
> > >
> > > The $800 goes directly on Schedule C of my personal tax return. My
LLC
> is
> > > treated as a sole-proprietership by California because I'm the only
> > member.
> > > So, I get the legal protection of a C-Corp and the paperwork ease of a
> > > sole-proprietership.
> > >
> > > r.
> > >
> >
> > How does that work exactly? I'm not familiar with LLC's, except
> > that from what I remember you can opt to have them treated as
> > either partnerships or corporations for tax purposes.
> >
> > I don't understand how you can pass the $800 back to your individual
> > return unless you're treated as an S-corp for tax purposes.
> >
> >
>
>

[Tony Cox]

"Rob Thomas" > wrote in message
...
> Single entity LLC's (one director, me) are treated *exactly* like sole
> proprietorships by the IRS. However, they are still afforded the same
legal
> protections as a C-Corporation. It *used* to be that LLC's were treated
as
> partnerships, or the LLC could elect to be treated as a C-Corp for tax
> purposes. Those regulations changed a few years ago.
>
> I file a 1040, along with a Schedule C (profit/loss from business) just as
> any other sole proprietorship would.
>
> Just a side note, all of my income is produced through my LLC, so it's not
> just a holding company for an aircraft. I know some people set them up
that
> way, but just wanted to point out that mine is not setup that way.
>

Thanks for the clear response. BTW, do you use your
aircraft for business or do you just use your LLC to hold
title?

I've been advised *not* to mix my aircraft (which is used
very occasionally for business) with the corporation. My
CPA says it attracts attention from the IRS. Not that I'd
be worried about the attention per se, but of course the
costs involved in even a successful audit are time, effort,
and paperwork frustration.

Did the FAA require further info on the LLC to register
your plane? Like proof of LLC ownership, conditions
for ownership transfer etc? I had the devils own trouble
attempting to register the plane to a revocable living
trust & finally gave up on the buggers and reregistered
in my own name.

[Rob Thomas]

Tony,

I'm actually going through the process of buying a plane right now. I did
have a C-Corporation a few years back in which the corporation did own a
Cessna 172. I shut that company down and sold the aircraft and now I have
this LLC. I actually haven't decided whether to hold the aircraft in the
LLC's name or not, as in my specific case (single entity LLC), it may not
matter (this is one of the questions on my list next time I talk to my tax
advisor). The gentleman that I sold my last aircraft to did register it to
his LLC and, to my knowledge, there weren't any problems. In fact, he was
hurriedly setting up the LLC from scratch so that the transaction could
complete.

The aircraft I will be purchasing will be used for approximately 80%
business flights, which from case law, appears to be enough useage to
withstand an audit. There is some interesting cases that deal with writing
off 100% of your aircraft, and then paying yourself back SIFL rates in the
form of "fringe benefits" on a W-2 for any personal use (again, more
questions that I'm going to be asking my tax advisor).

From all the reading I've done, it's clear to me that anyone that is using a
light aircraft for business is waving red flags in front of the IRS.
However, I've adopted the position of learning as much as I can, getting
sound advice, and documenting every last detail.

I know I will be audited. It's going to happen. Not only am I going to use
a light aircraft for business purposes, but I'm an independent contractor
(software programmer) and that profession garners a lot of interest from the
IRS all by itself. I spend a ridiculous amount of time on documenting
everything right now so that my files are in condition that if an audit were
next week, I'd have little preparation to do.

Your case is a bit different. The line between my business and personal
assets is there, but it's not as exacting as yours (Corporation and
personal). I would imagine that if you want to use the 100% business
deduction on the plane and then use SIFL method, then your Corporation is
probably going to need to own the aircraft. But your CPA is probably right,
it will be a red flag is you do it that way.

By the way, I'd recommend taking a look at http://www.atisgroup.com.
There's some excellent articles there that are specific to California.

r.



"Tony Cox" > wrote in message
ink.net...
> "Rob Thomas" > wrote in message
> ...
> > Single entity LLC's (one director, me) are treated *exactly* like sole
> > proprietorships by the IRS. However, they are still afforded the same
> legal
> > protections as a C-Corporation. It *used* to be that LLC's were treated
> as
> > partnerships, or the LLC could elect to be treated as a C-Corp for tax
> > purposes. Those regulations changed a few years ago.
> >
> > I file a 1040, along with a Schedule C (profit/loss from business) just
as
> > any other sole proprietorship would.
> >
> > Just a side note, all of my income is produced through my LLC, so it's
not
> > just a holding company for an aircraft. I know some people set them up
> that
> > way, but just wanted to point out that mine is not setup that way.
> >
>
> Thanks for the clear response. BTW, do you use your
> aircraft for business or do you just use your LLC to hold
> title?
>
> I've been advised *not* to mix my aircraft (which is used
> very occasionally for business) with the corporation. My
> CPA says it attracts attention from the IRS. Not that I'd
> be worried about the attention per se, but of course the
> costs involved in even a successful audit are time, effort,
> and paperwork frustration.
>
> Did the FAA require further info on the LLC to register
> your plane? Like proof of LLC ownership, conditions
> for ownership transfer etc? I had the devils own trouble
> attempting to register the plane to a revocable living
> trust & finally gave up on the buggers and reregistered
> in my own name.
>
>

[Mike Rapoport]

If it is your aircraft and you are the pilot, then there is no liability
protection advantage of having a corporation (or other entity) own the
aircraft.

Mike
MU-2

"Rob Thomas" > wrote in message
...
> Single entity LLC's (one director, me) are treated *exactly* like sole
> proprietorships by the IRS. However, they are still afforded the same
legal
> protections as a C-Corporation. It *used* to be that LLC's were treated
as
> partnerships, or the LLC could elect to be treated as a C-Corp for tax
> purposes. Those regulations changed a few years ago.
>
> I file a 1040, along with a Schedule C (profit/loss from business) just as
> any other sole proprietorship would.
>
> Just a side note, all of my income is produced through my LLC, so it's not
> just a holding company for an aircraft. I know some people set them up
that
> way, but just wanted to point out that mine is not setup that way.
>
> r.
>
> "Tony Cox" > wrote in message
> hlink.net...
> > "Rob Thomas" > wrote in message
> > ...
> > > Absolutely.
> > >
> > > The $800 goes directly on Schedule C of my personal tax return. My
LLC
> is
> > > treated as a sole-proprietership by California because I'm the only
> > member.
> > > So, I get the legal protection of a C-Corp and the paperwork ease of a
> > > sole-proprietership.
> > >
> > > r.
> > >
> >
> > How does that work exactly? I'm not familiar with LLC's, except
> > that from what I remember you can opt to have them treated as
> > either partnerships or corporations for tax purposes.
> >
> > I don't understand how you can pass the $800 back to your individual
> > return unless you're treated as an S-corp for tax purposes.
> >
> >
>
>

[Rob Thomas]

Agreed. I'm more concerned about liability from my actual business
activities which the LLC helps provide, as well as a big ole general
liability insurance policy. :)

r.

"Mike Rapoport" > wrote in message
hlink.net...
>
> If it is your aircraft and you are the pilot, then there is no liability
> protection advantage of having a corporation (or other entity) own the
> aircraft.
>
> Mike
> MU-2
>
> "Rob Thomas" > wrote in message
> ...
> > Single entity LLC's (one director, me) are treated *exactly* like sole
> > proprietorships by the IRS. However, they are still afforded the same
> legal
> > protections as a C-Corporation. It *used* to be that LLC's were treated
> as
> > partnerships, or the LLC could elect to be treated as a C-Corp for tax
> > purposes. Those regulations changed a few years ago.
> >
> > I file a 1040, along with a Schedule C (profit/loss from business) just
as
> > any other sole proprietorship would.
> >
> > Just a side note, all of my income is produced through my LLC, so it's
not
> > just a holding company for an aircraft. I know some people set them up
> that
> > way, but just wanted to point out that mine is not setup that way.
> >
> > r.
> >
> > "Tony Cox" > wrote in message
> > hlink.net...
> > > "Rob Thomas" > wrote in message
> > > ...
> > > > Absolutely.
> > > >
> > > > The $800 goes directly on Schedule C of my personal tax return. My
> LLC
> > is
> > > > treated as a sole-proprietership by California because I'm the only
> > > member.
> > > > So, I get the legal protection of a C-Corp and the paperwork ease of
a
> > > > sole-proprietership.
> > > >
> > > > r.
> > > >
> > >
> > > How does that work exactly? I'm not familiar with LLC's, except
> > > that from what I remember you can opt to have them treated as
> > > either partnerships or corporations for tax purposes.
> > >
> > > I don't understand how you can pass the $800 back to your individual
> > > return unless you're treated as an S-corp for tax purposes.
> > >
> > >
> >
> >
>
>

[Mike Rapoport]

Where have you read that expensing aircraft expenses is a "red flag"? An
aircraft is not a red flag if use of private aircraft is "ordinary and
nessisary" in the particular type of business and the cost if reasonable in
light of the size of the business..

Mike
MU-2

"Rob Thomas" > wrote in message
...
> Tony,
>
> I'm actually going through the process of buying a plane right now. I did
> have a C-Corporation a few years back in which the corporation did own a
> Cessna 172. I shut that company down and sold the aircraft and now I have
> this LLC. I actually haven't decided whether to hold the aircraft in the
> LLC's name or not, as in my specific case (single entity LLC), it may not
> matter (this is one of the questions on my list next time I talk to my tax
> advisor). The gentleman that I sold my last aircraft to did register it
to
> his LLC and, to my knowledge, there weren't any problems. In fact, he was
> hurriedly setting up the LLC from scratch so that the transaction could
> complete.
>
> The aircraft I will be purchasing will be used for approximately 80%
> business flights, which from case law, appears to be enough useage to
> withstand an audit. There is some interesting cases that deal with
writing
> off 100% of your aircraft, and then paying yourself back SIFL rates in the
> form of "fringe benefits" on a W-2 for any personal use (again, more
> questions that I'm going to be asking my tax advisor).
>
> From all the reading I've done, it's clear to me that anyone that is using
a
> light aircraft for business is waving red flags in front of the IRS.
> However, I've adopted the position of learning as much as I can, getting
> sound advice, and documenting every last detail.
>
> I know I will be audited. It's going to happen. Not only am I going to
use
> a light aircraft for business purposes, but I'm an independent contractor
> (software programmer) and that profession garners a lot of interest from
the
> IRS all by itself. I spend a ridiculous amount of time on documenting
> everything right now so that my files are in condition that if an audit
were
> next week, I'd have little preparation to do.
>
> Your case is a bit different. The line between my business and personal
> assets is there, but it's not as exacting as yours (Corporation and
> personal). I would imagine that if you want to use the 100% business
> deduction on the plane and then use SIFL method, then your Corporation is
> probably going to need to own the aircraft. But your CPA is probably
right,
> it will be a red flag is you do it that way.
>
> By the way, I'd recommend taking a look at http://www.atisgroup.com.
> There's some excellent articles there that are specific to California.
>
> r.
>
>
>
> "Tony Cox" > wrote in message
> ink.net...
> > "Rob Thomas" > wrote in message
> > ...
> > > Single entity LLC's (one director, me) are treated *exactly* like sole
> > > proprietorships by the IRS. However, they are still afforded the same
> > legal
> > > protections as a C-Corporation. It *used* to be that LLC's were
treated
> > as
> > > partnerships, or the LLC could elect to be treated as a C-Corp for tax
> > > purposes. Those regulations changed a few years ago.
> > >
> > > I file a 1040, along with a Schedule C (profit/loss from business)
just
> as
> > > any other sole proprietorship would.
> > >
> > > Just a side note, all of my income is produced through my LLC, so it's
> not
> > > just a holding company for an aircraft. I know some people set them
up
> > that
> > > way, but just wanted to point out that mine is not setup that way.
> > >
> >
> > Thanks for the clear response. BTW, do you use your
> > aircraft for business or do you just use your LLC to hold
> > title?
> >
> > I've been advised *not* to mix my aircraft (which is used
> > very occasionally for business) with the corporation. My
> > CPA says it attracts attention from the IRS. Not that I'd
> > be worried about the attention per se, but of course the
> > costs involved in even a successful audit are time, effort,
> > and paperwork frustration.
> >
> > Did the FAA require further info on the LLC to register
> > your plane? Like proof of LLC ownership, conditions
> > for ownership transfer etc? I had the devils own trouble
> > attempting to register the plane to a revocable living
> > trust & finally gave up on the buggers and reregistered
> > in my own name.
> >
> >
>
>

[Rob Thomas]

Mike, you're correct. There are no red flags.

r.

"Mike Rapoport" > wrote in message
link.net...
> Where have you read that expensing aircraft expenses is a "red flag"? An
> aircraft is not a red flag if use of private aircraft is "ordinary and
> nessisary" in the particular type of business and the cost if reasonable
in
> light of the size of the business..
>
> Mike
> MU-2
>
> "Rob Thomas" > wrote in message
> ...
> > Tony,
> >
> > I'm actually going through the process of buying a plane right now. I
did
> > have a C-Corporation a few years back in which the corporation did own a
> > Cessna 172. I shut that company down and sold the aircraft and now I
have
> > this LLC. I actually haven't decided whether to hold the aircraft in
the
> > LLC's name or not, as in my specific case (single entity LLC), it may
not
> > matter (this is one of the questions on my list next time I talk to my
tax
> > advisor). The gentleman that I sold my last aircraft to did register it
> to
> > his LLC and, to my knowledge, there weren't any problems. In fact, he
was
> > hurriedly setting up the LLC from scratch so that the transaction could
> > complete.
> >
> > The aircraft I will be purchasing will be used for approximately 80%
> > business flights, which from case law, appears to be enough useage to
> > withstand an audit. There is some interesting cases that deal with
> writing
> > off 100% of your aircraft, and then paying yourself back SIFL rates in
the
> > form of "fringe benefits" on a W-2 for any personal use (again, more
> > questions that I'm going to be asking my tax advisor).
> >
> > From all the reading I've done, it's clear to me that anyone that is
using
> a
> > light aircraft for business is waving red flags in front of the IRS.
> > However, I've adopted the position of learning as much as I can, getting
> > sound advice, and documenting every last detail.
> >
> > I know I will be audited. It's going to happen. Not only am I going to
> use
> > a light aircraft for business purposes, but I'm an independent
contractor
> > (software programmer) and that profession garners a lot of interest from
> the
> > IRS all by itself. I spend a ridiculous amount of time on documenting
> > everything right now so that my files are in condition that if an audit
> were
> > next week, I'd have little preparation to do.
> >
> > Your case is a bit different. The line between my business and personal
> > assets is there, but it's not as exacting as yours (Corporation and
> > personal). I would imagine that if you want to use the 100% business
> > deduction on the plane and then use SIFL method, then your Corporation
is
> > probably going to need to own the aircraft. But your CPA is probably
> right,
> > it will be a red flag is you do it that way.
> >
> > By the way, I'd recommend taking a look at http://www.atisgroup.com.
> > There's some excellent articles there that are specific to California.
> >
> > r.
> >
> >
> >
> > "Tony Cox" > wrote in message
> > ink.net...
> > > "Rob Thomas" > wrote in message
> > > ...
> > > > Single entity LLC's (one director, me) are treated *exactly* like
sole
> > > > proprietorships by the IRS. However, they are still afforded the
same
> > > legal
> > > > protections as a C-Corporation. It *used* to be that LLC's were
> treated
> > > as
> > > > partnerships, or the LLC could elect to be treated as a C-Corp for
tax
> > > > purposes. Those regulations changed a few years ago.
> > > >
> > > > I file a 1040, along with a Schedule C (profit/loss from business)
> just
> > as
> > > > any other sole proprietorship would.
> > > >
> > > > Just a side note, all of my income is produced through my LLC, so
it's
> > not
> > > > just a holding company for an aircraft. I know some people set them
> up
> > > that
> > > > way, but just wanted to point out that mine is not setup that way.
> > > >
> > >
> > > Thanks for the clear response. BTW, do you use your
> > > aircraft for business or do you just use your LLC to hold
> > > title?
> > >
> > > I've been advised *not* to mix my aircraft (which is used
> > > very occasionally for business) with the corporation. My
> > > CPA says it attracts attention from the IRS. Not that I'd
> > > be worried about the attention per se, but of course the
> > > costs involved in even a successful audit are time, effort,
> > > and paperwork frustration.
> > >
> > > Did the FAA require further info on the LLC to register
> > > your plane? Like proof of LLC ownership, conditions
> > > for ownership transfer etc? I had the devils own trouble
> > > attempting to register the plane to a revocable living
> > > trust & finally gave up on the buggers and reregistered
> > > in my own name.
> > >
> > >
> >
> >
>
>

[Tony Cox]

"Rob Thomas" > wrote in message
...
>
> Mike, you're correct. There are no red flags.

How would you know?

Each year (as I understand it), the IRS top brass have a
meeting to decide exactly what criteria will be used to
decide who gets audited. This is in addition to the 'base
rate' random auditing. Anything 'unusual' can only increase
your chance of being audited if it is statistically worth
devoting the auditors time to it. Tax fairness be damned;
its the $$$'s they want.

A one-man LLC grossing (say) $250K while expensing
25% of that in travel expenses (depreciation, operating
expenses, recurrent training) is certainly 'unusual', and
likely to yield the 'low hanging fruit' that the IRS auditors
love to munch on.

[Mike Rapoport]

Excepting depreciation, on the return itself, most aircraft expenses are
recorded on lines that don't specify that the expense relates to an airplane
at all. (Maitenance, travel, rent, interest)

Mike
MU-2


"Rob Thomas" > wrote in message
...
> Mike, you're correct. There are no red flags.
>
> r.
>
> "Mike Rapoport" > wrote in message
> link.net...
> > Where have you read that expensing aircraft expenses is a "red flag"?
An
> > aircraft is not a red flag if use of private aircraft is "ordinary and
> > nessisary" in the particular type of business and the cost if reasonable
> in
> > light of the size of the business..
> >
> > Mike
> > MU-2
> >
> > "Rob Thomas" > wrote in message
> > ...
> > > Tony,
> > >
> > > I'm actually going through the process of buying a plane right now. I
> did
> > > have a C-Corporation a few years back in which the corporation did own
a
> > > Cessna 172. I shut that company down and sold the aircraft and now I
> have
> > > this LLC. I actually haven't decided whether to hold the aircraft in
> the
> > > LLC's name or not, as in my specific case (single entity LLC), it may
> not
> > > matter (this is one of the questions on my list next time I talk to my
> tax
> > > advisor). The gentleman that I sold my last aircraft to did register
it
> > to
> > > his LLC and, to my knowledge, there weren't any problems. In fact, he
> was
> > > hurriedly setting up the LLC from scratch so that the transaction
could
> > > complete.
> > >
> > > The aircraft I will be purchasing will be used for approximately 80%
> > > business flights, which from case law, appears to be enough useage to
> > > withstand an audit. There is some interesting cases that deal with
> > writing
> > > off 100% of your aircraft, and then paying yourself back SIFL rates in
> the
> > > form of "fringe benefits" on a W-2 for any personal use (again, more
> > > questions that I'm going to be asking my tax advisor).
> > >
> > > From all the reading I've done, it's clear to me that anyone that is
> using
> > a
> > > light aircraft for business is waving red flags in front of the IRS.
> > > However, I've adopted the position of learning as much as I can,
getting
> > > sound advice, and documenting every last detail.
> > >
> > > I know I will be audited. It's going to happen. Not only am I going
to
> > use
> > > a light aircraft for business purposes, but I'm an independent
> contractor
> > > (software programmer) and that profession garners a lot of interest
from
> > the
> > > IRS all by itself. I spend a ridiculous amount of time on documenting
> > > everything right now so that my files are in condition that if an
audit
> > were
> > > next week, I'd have little preparation to do.
> > >
> > > Your case is a bit different. The line between my business and
personal
> > > assets is there, but it's not as exacting as yours (Corporation and
> > > personal). I would imagine that if you want to use the 100% business
> > > deduction on the plane and then use SIFL method, then your Corporation
> is
> > > probably going to need to own the aircraft. But your CPA is probably
> > right,
> > > it will be a red flag is you do it that way.
> > >
> > > By the way, I'd recommend taking a look at http://www.atisgroup.com.
> > > There's some excellent articles there that are specific to California.
> > >
> > > r.
> > >
> > >
> > >
> > > "Tony Cox" > wrote in message
> > > ink.net...
> > > > "Rob Thomas" > wrote in message
> > > > ...
> > > > > Single entity LLC's (one director, me) are treated *exactly* like
> sole
> > > > > proprietorships by the IRS. However, they are still afforded the
> same
> > > > legal
> > > > > protections as a C-Corporation. It *used* to be that LLC's were
> > treated
> > > > as
> > > > > partnerships, or the LLC could elect to be treated as a C-Corp for
> tax
> > > > > purposes. Those regulations changed a few years ago.
> > > > >
> > > > > I file a 1040, along with a Schedule C (profit/loss from business)
> > just
> > > as
> > > > > any other sole proprietorship would.
> > > > >
> > > > > Just a side note, all of my income is produced through my LLC, so
> it's
> > > not
> > > > > just a holding company for an aircraft. I know some people set
them
> > up
> > > > that
> > > > > way, but just wanted to point out that mine is not setup that way.
> > > > >
> > > >
> > > > Thanks for the clear response. BTW, do you use your
> > > > aircraft for business or do you just use your LLC to hold
> > > > title?
> > > >
> > > > I've been advised *not* to mix my aircraft (which is used
> > > > very occasionally for business) with the corporation. My
> > > > CPA says it attracts attention from the IRS. Not that I'd
> > > > be worried about the attention per se, but of course the
> > > > costs involved in even a successful audit are time, effort,
> > > > and paperwork frustration.
> > > >
> > > > Did the FAA require further info on the LLC to register
> > > > your plane? Like proof of LLC ownership, conditions
> > > > for ownership transfer etc? I had the devils own trouble
> > > > attempting to register the plane to a revocable living
> > > > trust & finally gave up on the buggers and reregistered
> > > > in my own name.
> > > >
> > > >
> > >
> > >
> >
> >
>
>

[Mike Rapoport]

"Tony Cox" > wrote in message
hlink.net...
> "Rob Thomas" > wrote in message
> ...
> >
> > Mike, you're correct. There are no red flags.
>
> How would you know?
>
> Each year (as I understand it), the IRS top brass have a
> meeting to decide exactly what criteria will be used to
> decide who gets audited. This is in addition to the 'base
> rate' random auditing. Anything 'unusual' can only increase
> your chance of being audited if it is statistically worth
> devoting the auditors time to it. Tax fairness be damned;
> its the $$$'s they want.
>
> A one-man LLC grossing (say) $250K while expensing
> 25% of that in travel expenses (depreciation, operating
> expenses, recurrent training) is certainly 'unusual', and
> likely to yield the 'low hanging fruit' that the IRS auditors
> love to munch on.
>
>

Depreciation, maitenance, operating expense (travel)and training are all on
different lines and, except for depreciation, there is no mention of an
airplane at all. I agree that there needs to be a real basis for using a
private airplane for travel but since there is no mention of the word
"airplane" anywhere on a tax return, I can't see how expensing the business
use of an airplane could be a "red flag".

Mike
MU-2

[Mike Rapoport]

I don't see how a LLC can protect you from any liablility if you are the
sole owner/employee. There is no way to avoid liability for ones own
actions.

Mike
MU-2

"Rob Thomas" > wrote in message
...
> Agreed. I'm more concerned about liability from my actual business
> activities which the LLC helps provide, as well as a big ole general
> liability insurance policy. :)
>
> r.
>
> "Mike Rapoport" > wrote in message
> hlink.net...
> >
> > If it is your aircraft and you are the pilot, then there is no liability
> > protection advantage of having a corporation (or other entity) own the
> > aircraft.
> >
> > Mike
> > MU-2
> >
> > "Rob Thomas" > wrote in message
> > ...
> > > Single entity LLC's (one director, me) are treated *exactly* like sole
> > > proprietorships by the IRS. However, they are still afforded the same
> > legal
> > > protections as a C-Corporation. It *used* to be that LLC's were
treated
> > as
> > > partnerships, or the LLC could elect to be treated as a C-Corp for tax
> > > purposes. Those regulations changed a few years ago.
> > >
> > > I file a 1040, along with a Schedule C (profit/loss from business)
just
> as
> > > any other sole proprietorship would.
> > >
> > > Just a side note, all of my income is produced through my LLC, so it's
> not
> > > just a holding company for an aircraft. I know some people set them
up
> > that
> > > way, but just wanted to point out that mine is not setup that way.
> > >
> > > r.
> > >
> > > "Tony Cox" > wrote in message
> > > hlink.net...
> > > > "Rob Thomas" > wrote in message
> > > > ...
> > > > > Absolutely.
> > > > >
> > > > > The $800 goes directly on Schedule C of my personal tax return.
My
> > LLC
> > > is
> > > > > treated as a sole-proprietership by California because I'm the
only
> > > > member.
> > > > > So, I get the legal protection of a C-Corp and the paperwork ease
of
> a
> > > > > sole-proprietership.
> > > > >
> > > > > r.
> > > > >
> > > >
> > > > How does that work exactly? I'm not familiar with LLC's, except
> > > > that from what I remember you can opt to have them treated as
> > > > either partnerships or corporations for tax purposes.
> > > >
> > > > I don't understand how you can pass the $800 back to your individual
> > > > return unless you're treated as an S-corp for tax purposes.
> > > >
> > > >
> > >
> > >
> >
> >
>
>

[Rob Thomas]

Yes, but there is a description of the asset for depreication. While it's
been recommended that you don't use the word "aircraft" in that description
and use something more technical to describe it, it does have to be
identified. Whether the IRS knows that your description is an aircraft, I
wouldn't know.

r.

"Mike Rapoport" > wrote in message
link.net...
> Excepting depreciation, on the return itself, most aircraft expenses are
> recorded on lines that don't specify that the expense relates to an
airplane
> at all. (Maitenance, travel, rent, interest)
>
> Mike
> MU-2
>
>
> "Rob Thomas" > wrote in message
> ...
> > Mike, you're correct. There are no red flags.
> >
> > r.
> >
> > "Mike Rapoport" > wrote in message
> > link.net...
> > > Where have you read that expensing aircraft expenses is a "red flag"?
> An
> > > aircraft is not a red flag if use of private aircraft is "ordinary and
> > > nessisary" in the particular type of business and the cost if
reasonable
> > in
> > > light of the size of the business..
> > >
> > > Mike
> > > MU-2
> > >
> > > "Rob Thomas" > wrote in message
> > > ...
> > > > Tony,
> > > >
> > > > I'm actually going through the process of buying a plane right now.
I
> > did
> > > > have a C-Corporation a few years back in which the corporation did
own
> a
> > > > Cessna 172. I shut that company down and sold the aircraft and now
I
> > have
> > > > this LLC. I actually haven't decided whether to hold the aircraft
in
> > the
> > > > LLC's name or not, as in my specific case (single entity LLC), it
may
> > not
> > > > matter (this is one of the questions on my list next time I talk to
my
> > tax
> > > > advisor). The gentleman that I sold my last aircraft to did
register
> it
> > > to
> > > > his LLC and, to my knowledge, there weren't any problems. In fact,
he
> > was
> > > > hurriedly setting up the LLC from scratch so that the transaction
> could
> > > > complete.
> > > >
> > > > The aircraft I will be purchasing will be used for approximately 80%
> > > > business flights, which from case law, appears to be enough useage
to
> > > > withstand an audit. There is some interesting cases that deal with
> > > writing
> > > > off 100% of your aircraft, and then paying yourself back SIFL rates
in
> > the
> > > > form of "fringe benefits" on a W-2 for any personal use (again, more
> > > > questions that I'm going to be asking my tax advisor).
> > > >
> > > > From all the reading I've done, it's clear to me that anyone that is
> > using
> > > a
> > > > light aircraft for business is waving red flags in front of the IRS.
> > > > However, I've adopted the position of learning as much as I can,
> getting
> > > > sound advice, and documenting every last detail.
> > > >
> > > > I know I will be audited. It's going to happen. Not only am I
going
> to
> > > use
> > > > a light aircraft for business purposes, but I'm an independent
> > contractor
> > > > (software programmer) and that profession garners a lot of interest
> from
> > > the
> > > > IRS all by itself. I spend a ridiculous amount of time on
documenting
> > > > everything right now so that my files are in condition that if an
> audit
> > > were
> > > > next week, I'd have little preparation to do.
> > > >
> > > > Your case is a bit different. The line between my business and
> personal
> > > > assets is there, but it's not as exacting as yours (Corporation and
> > > > personal). I would imagine that if you want to use the 100%
business
> > > > deduction on the plane and then use SIFL method, then your
Corporation
> > is
> > > > probably going to need to own the aircraft. But your CPA is
probably
> > > right,
> > > > it will be a red flag is you do it that way.
> > > >
> > > > By the way, I'd recommend taking a look at http://www.atisgroup.com.
> > > > There's some excellent articles there that are specific to
California.
> > > >
> > > > r.
> > > >
> > > >
> > > >
> > > > "Tony Cox" > wrote in message
> > > > ink.net...
> > > > > "Rob Thomas" > wrote in message
> > > > > ...
> > > > > > Single entity LLC's (one director, me) are treated *exactly*
like
> > sole
> > > > > > proprietorships by the IRS. However, they are still afforded
the
> > same
> > > > > legal
> > > > > > protections as a C-Corporation. It *used* to be that LLC's were
> > > treated
> > > > > as
> > > > > > partnerships, or the LLC could elect to be treated as a C-Corp
for
> > tax
> > > > > > purposes. Those regulations changed a few years ago.
> > > > > >
> > > > > > I file a 1040, along with a Schedule C (profit/loss from
business)
> > > just
> > > > as
> > > > > > any other sole proprietorship would.
> > > > > >
> > > > > > Just a side note, all of my income is produced through my LLC,
so
> > it's
> > > > not
> > > > > > just a holding company for an aircraft. I know some people set
> them
> > > up
> > > > > that
> > > > > > way, but just wanted to point out that mine is not setup that
way.
> > > > > >
> > > > >
> > > > > Thanks for the clear response. BTW, do you use your
> > > > > aircraft for business or do you just use your LLC to hold
> > > > > title?
> > > > >
> > > > > I've been advised *not* to mix my aircraft (which is used
> > > > > very occasionally for business) with the corporation. My
> > > > > CPA says it attracts attention from the IRS. Not that I'd
> > > > > be worried about the attention per se, but of course the
> > > > > costs involved in even a successful audit are time, effort,
> > > > > and paperwork frustration.
> > > > >
> > > > > Did the FAA require further info on the LLC to register
> > > > > your plane? Like proof of LLC ownership, conditions
> > > > > for ownership transfer etc? I had the devils own trouble
> > > > > attempting to register the plane to a revocable living
> > > > > trust & finally gave up on the buggers and reregistered
> > > > > in my own name.
> > > > >
> > > > >
> > > >
> > > >
> > >
> > >
> >
> >
>
>

[Rob Thomas]

Wow. It'd be great in these groups if folks would just relax a little bit.

I said there are no red flags, because I really didn't want to get involved
in a circular argument with Mike. It's clear that the IRS identifies
certain ratios and expenses and increases the likelyhood of an audit. Does
anyone abosultely know exactly what every one of these are? No. And I
didn't want to have to go through all of that. It was easier just to answer
with tougue in cheek.

r.

"Tony Cox" > wrote in message
hlink.net...
> "Rob Thomas" > wrote in message
> ...
> >
> > Mike, you're correct. There are no red flags.
>
> How would you know?
>
> Each year (as I understand it), the IRS top brass have a
> meeting to decide exactly what criteria will be used to
> decide who gets audited. This is in addition to the 'base
> rate' random auditing. Anything 'unusual' can only increase
> your chance of being audited if it is statistically worth
> devoting the auditors time to it. Tax fairness be damned;
> its the $$$'s they want.
>
> A one-man LLC grossing (say) $250K while expensing
> 25% of that in travel expenses (depreciation, operating
> expenses, recurrent training) is certainly 'unusual', and
> likely to yield the 'low hanging fruit' that the IRS auditors
> love to munch on.
>
>
>

[Tony Cox]

"Mike Rapoport" > wrote in message
link.net...
>
> Excepting depreciation, on the return itself, most aircraft expenses are
> recorded on lines that don't specify that the expense relates to an
airplane
> at all. (Maitenance, travel, rent, interest)

Form 4562 (depreciation) does not say aircraft are "Listed"
property. I think you could hide one as general MACRS
5-year property. Perhaps they'd think it was a big computer!

Tony (not a CPA, but who has had to wrestle with all this crap
thanks to the incompetence of those who have claimed to be).

[Rob Thomas]

Mike,

Who said that I wouldn't be liable for my own actions? Of course I am.

It's the same reason to form a C Corporation. If you screw up, the assets
at risk are your business assets not your personal assets. You have the
same "corporate veil" issues.

r.

"Mike Rapoport" > wrote in message
link.net...
> I don't see how a LLC can protect you from any liablility if you are the
> sole owner/employee. There is no way to avoid liability for ones own
> actions.
>
> Mike
> MU-2
>
> "Rob Thomas" > wrote in message
> ...
> > Agreed. I'm more concerned about liability from my actual business
> > activities which the LLC helps provide, as well as a big ole general
> > liability insurance policy. :)
> >
> > r.
> >
> > "Mike Rapoport" > wrote in message
> > hlink.net...
> > >
> > > If it is your aircraft and you are the pilot, then there is no
liability
> > > protection advantage of having a corporation (or other entity) own the
> > > aircraft.
> > >
> > > Mike
> > > MU-2
> > >
> > > "Rob Thomas" > wrote in message
> > > ...
> > > > Single entity LLC's (one director, me) are treated *exactly* like
sole
> > > > proprietorships by the IRS. However, they are still afforded the
same
> > > legal
> > > > protections as a C-Corporation. It *used* to be that LLC's were
> treated
> > > as
> > > > partnerships, or the LLC could elect to be treated as a C-Corp for
tax
> > > > purposes. Those regulations changed a few years ago.
> > > >
> > > > I file a 1040, along with a Schedule C (profit/loss from business)
> just
> > as
> > > > any other sole proprietorship would.
> > > >
> > > > Just a side note, all of my income is produced through my LLC, so
it's
> > not
> > > > just a holding company for an aircraft. I know some people set them
> up
> > > that
> > > > way, but just wanted to point out that mine is not setup that way.
> > > >
> > > > r.
> > > >
> > > > "Tony Cox" > wrote in message
> > > > hlink.net...
> > > > > "Rob Thomas" > wrote in message
> > > > > ...
> > > > > > Absolutely.
> > > > > >
> > > > > > The $800 goes directly on Schedule C of my personal tax return.
> My
> > > LLC
> > > > is
> > > > > > treated as a sole-proprietership by California because I'm the
> only
> > > > > member.
> > > > > > So, I get the legal protection of a C-Corp and the paperwork
ease
> of
> > a
> > > > > > sole-proprietership.
> > > > > >
> > > > > > r.
> > > > > >
> > > > >
> > > > > How does that work exactly? I'm not familiar with LLC's, except
> > > > > that from what I remember you can opt to have them treated as
> > > > > either partnerships or corporations for tax purposes.
> > > > >
> > > > > I don't understand how you can pass the $800 back to your
individual
> > > > > return unless you're treated as an S-corp for tax purposes.
> > > > >
> > > > >
> > > >
> > > >
> > >
> > >
> >
> >
>
>

[Mike Rapoport]

We agree that if you screw up then you are personally liable and your
personal assets are at risk. If you screw up while performing work through
your LLC, then you are still personally liable as your personal assets are
still at risk (as well as those of the LLC). The only time that a legal
entity offers liability and asset protection is when someone else (within
the entity) screws up. If you had an employee performing work for the LLC
and he screwed up (and you had nothing to do with it), he and the LLC would
be liable and your personal assets would be safe. Since you are (I think
from your posts) the only employee, I don't see how an LLC offers any
protection of your personal assets.

Mike
MU-2

"Rob Thomas" > wrote in message
...
> Mike,
>
> Who said that I wouldn't be liable for my own actions? Of course I am.
>
> It's the same reason to form a C Corporation. If you screw up, the assets
> at risk are your business assets not your personal assets. You have the
> same "corporate veil" issues.
>
> r.
>
> "Mike Rapoport" > wrote in message
> link.net...
> > I don't see how a LLC can protect you from any liablility if you are the
> > sole owner/employee. There is no way to avoid liability for ones own
> > actions.
> >
> > Mike
> > MU-2
> >
> > "Rob Thomas" > wrote in message
> > ...
> > > Agreed. I'm more concerned about liability from my actual business
> > > activities which the LLC helps provide, as well as a big ole general
> > > liability insurance policy. :)
> > >
> > > r.
> > >
> > > "Mike Rapoport" > wrote in message
> > > hlink.net...
> > > >
> > > > If it is your aircraft and you are the pilot, then there is no
> liability
> > > > protection advantage of having a corporation (or other entity) own
the
> > > > aircraft.
> > > >
> > > > Mike
> > > > MU-2
> > > >
> > > > "Rob Thomas" > wrote in message
> > > > ...
> > > > > Single entity LLC's (one director, me) are treated *exactly* like
> sole
> > > > > proprietorships by the IRS. However, they are still afforded the
> same
> > > > legal
> > > > > protections as a C-Corporation. It *used* to be that LLC's were
> > treated
> > > > as
> > > > > partnerships, or the LLC could elect to be treated as a C-Corp for
> tax
> > > > > purposes. Those regulations changed a few years ago.
> > > > >
> > > > > I file a 1040, along with a Schedule C (profit/loss from business)
> > just
> > > as
> > > > > any other sole proprietorship would.
> > > > >
> > > > > Just a side note, all of my income is produced through my LLC, so
> it's
> > > not
> > > > > just a holding company for an aircraft. I know some people set
them
> > up
> > > > that
> > > > > way, but just wanted to point out that mine is not setup that way.
> > > > >
> > > > > r.
> > > > >
> > > > > "Tony Cox" > wrote in message
> > > > > hlink.net...
> > > > > > "Rob Thomas" > wrote in message
> > > > > > ...
> > > > > > > Absolutely.
> > > > > > >
> > > > > > > The $800 goes directly on Schedule C of my personal tax
return.
> > My
> > > > LLC
> > > > > is
> > > > > > > treated as a sole-proprietership by California because I'm the
> > only
> > > > > > member.
> > > > > > > So, I get the legal protection of a C-Corp and the paperwork
> ease
> > of
> > > a
> > > > > > > sole-proprietership.
> > > > > > >
> > > > > > > r.
> > > > > > >
> > > > > >
> > > > > > How does that work exactly? I'm not familiar with LLC's, except
> > > > > > that from what I remember you can opt to have them treated as
> > > > > > either partnerships or corporations for tax purposes.
> > > > > >
> > > > > > I don't understand how you can pass the $800 back to your
> individual
> > > > > > return unless you're treated as an S-corp for tax purposes.
> > > > > >
> > > > > >
> > > > >
> > > > >
> > > >
> > > >
> > >
> > >
> >
> >
>
>

[Rob Thomas]

Mike,

You're right. I mispoke.

I absolutely agree that the LLC doesn't provide a whole lot of protection,
especially in the liability area. That's why I carry a ton of general
liability insurance as well as an errors and omissions policy. I'd disagree
about the assumption that you wouldn't be liable if you had an employee
screw up. I think you're still liable in that case as well. I do employ
independent contractors on occasion, but the liability in those cases is
often assigned in the contract with the client.

However, when it comes to debts taken out by the LLC, creditors cannot go
after personal assets to secure those debts. I'm sure you'll disagree with
me on this one. ;)

r.

"Mike Rapoport" > wrote in message
link.net...
> We agree that if you screw up then you are personally liable and your
> personal assets are at risk. If you screw up while performing work
through
> your LLC, then you are still personally liable as your personal assets are
> still at risk (as well as those of the LLC). The only time that a legal
> entity offers liability and asset protection is when someone else (within
> the entity) screws up. If you had an employee performing work for the LLC
> and he screwed up (and you had nothing to do with it), he and the LLC
would
> be liable and your personal assets would be safe. Since you are (I think
> from your posts) the only employee, I don't see how an LLC offers any
> protection of your personal assets.
>
> Mike
> MU-2
>
> "Rob Thomas" > wrote in message
> ...
> > Mike,
> >
> > Who said that I wouldn't be liable for my own actions? Of course I am.
> >
> > It's the same reason to form a C Corporation. If you screw up, the
assets
> > at risk are your business assets not your personal assets. You have the
> > same "corporate veil" issues.
> >
> > r.
> >
> > "Mike Rapoport" > wrote in message
> > link.net...
> > > I don't see how a LLC can protect you from any liablility if you are
the
> > > sole owner/employee. There is no way to avoid liability for ones own
> > > actions.
> > >
> > > Mike
> > > MU-2
> > >
> > > "Rob Thomas" > wrote in message
> > > ...
> > > > Agreed. I'm more concerned about liability from my actual business
> > > > activities which the LLC helps provide, as well as a big ole general
> > > > liability insurance policy. :)
> > > >
> > > > r.
> > > >
> > > > "Mike Rapoport" > wrote in message
> > > > hlink.net...
> > > > >
> > > > > If it is your aircraft and you are the pilot, then there is no
> > liability
> > > > > protection advantage of having a corporation (or other entity) own
> the
> > > > > aircraft.
> > > > >
> > > > > Mike
> > > > > MU-2
> > > > >
> > > > > "Rob Thomas" > wrote in message
> > > > > ...
> > > > > > Single entity LLC's (one director, me) are treated *exactly*
like
> > sole
> > > > > > proprietorships by the IRS. However, they are still afforded
the
> > same
> > > > > legal
> > > > > > protections as a C-Corporation. It *used* to be that LLC's were
> > > treated
> > > > > as
> > > > > > partnerships, or the LLC could elect to be treated as a C-Corp
for
> > tax
> > > > > > purposes. Those regulations changed a few years ago.
> > > > > >
> > > > > > I file a 1040, along with a Schedule C (profit/loss from
business)
> > > just
> > > > as
> > > > > > any other sole proprietorship would.
> > > > > >
> > > > > > Just a side note, all of my income is produced through my LLC,
so
> > it's
> > > > not
> > > > > > just a holding company for an aircraft. I know some people set
> them
> > > up
> > > > > that
> > > > > > way, but just wanted to point out that mine is not setup that
way.
> > > > > >
> > > > > > r.
> > > > > >
> > > > > > "Tony Cox" > wrote in message
> > > > > > hlink.net...
> > > > > > > "Rob Thomas" > wrote in message
> > > > > > > ...
> > > > > > > > Absolutely.
> > > > > > > >
> > > > > > > > The $800 goes directly on Schedule C of my personal tax
> return.
> > > My
> > > > > LLC
> > > > > > is
> > > > > > > > treated as a sole-proprietership by California because I'm
the
> > > only
> > > > > > > member.
> > > > > > > > So, I get the legal protection of a C-Corp and the paperwork
> > ease
> > > of
> > > > a
> > > > > > > > sole-proprietership.
> > > > > > > >
> > > > > > > > r.
> > > > > > > >
> > > > > > >
> > > > > > > How does that work exactly? I'm not familiar with LLC's,
except
> > > > > > > that from what I remember you can opt to have them treated as
> > > > > > > either partnerships or corporations for tax purposes.
> > > > > > >
> > > > > > > I don't understand how you can pass the $800 back to your
> > individual
> > > > > > > return unless you're treated as an S-corp for tax purposes.
> > > > > > >
> > > > > > >
> > > > > >
> > > > > >
> > > > >
> > > > >
> > > >
> > > >
> > >
> > >
> >
> >
>
>

[Mike Rapoport]

"Rob Thomas" > wrote in message
...
> Mike,
>
> You're right. I mispoke.
>
> I absolutely agree that the LLC doesn't provide a whole lot of protection,
> especially in the liability area. That's why I carry a ton of general
> liability insurance as well as an errors and omissions policy. I'd
disagree
> about the assumption that you wouldn't be liable if you had an employee
> screw up. I think you're still liable in that case as well. I do employ
> independent contractors on occasion, but the liability in those cases is
> often assigned in the contract with the client.
>
> However, when it comes to debts taken out by the LLC, creditors cannot go
> after personal assets to secure those debts. I'm sure you'll disagree
with
> me on this one. ;)
>
>

No, you are wrong...I won't disagree...

Mike
MU-2

[Rob Thomas]

Dang! And I was batting 1.000! :)

r.

"Mike Rapoport" > wrote in message
link.net...
>
> "Rob Thomas" > wrote in message
> ...
> > Mike,
> >
> > You're right. I mispoke.
> >
> > I absolutely agree that the LLC doesn't provide a whole lot of
protection,
> > especially in the liability area. That's why I carry a ton of general
> > liability insurance as well as an errors and omissions policy. I'd
> disagree
> > about the assumption that you wouldn't be liable if you had an employee
> > screw up. I think you're still liable in that case as well. I do
employ
> > independent contractors on occasion, but the liability in those cases is
> > often assigned in the contract with the client.
> >
> > However, when it comes to debts taken out by the LLC, creditors cannot
go
> > after personal assets to secure those debts. I'm sure you'll disagree
> with
> > me on this one. ;)
> >
> >
>
> No, you are wrong...I won't disagree...
>
> Mike
> MU-2
>
>
>

[TaxSrv]

Tony Cox wrote:
> Each year (as I understand it), the IRS top brass have a
> meeting to decide exactly what criteria will be used to
> decide who gets audited. This is in addition to the 'base
> rate' random auditing. Anything 'unusual' can only increase
> your chance of being audited if it is statistically worth
> devoting the auditors time to it. Tax fairness be damned;
> its the $$$'s they want.

The above description does not remotely describe how IRS annually
manges its enforcement programs. They do not do random audits, nor
does "top brass" decide on minute matters such as private aircraft
usage to be a target. The potential effect of claiming private
aircraft expenses is that they tend to be large, inflating travel
expense deductions relative to size and scope of the business. If
selected for audit, it would be on that basis.

Fred F.

[Tony Cox]

"TaxSrv" > wrote in message
...
> Tony Cox wrote:
> > Each year (as I understand it), the IRS top brass have a
> > meeting to decide exactly what criteria will be used to
> > decide who gets audited. This is in addition to the 'base
> > rate' random auditing. Anything 'unusual' can only increase
> > your chance of being audited if it is statistically worth
> > devoting the auditors time to it. Tax fairness be damned;
> > its the $$$'s they want.
>
> The above description does not remotely describe how IRS annually
> manges its enforcement programs. They do not do random audits, nor
> does "top brass" decide on minute matters such as private aircraft
> usage to be a target. The potential effect of claiming private
> aircraft expenses is that they tend to be large, inflating travel
> expense deductions relative to size and scope of the business. If
> selected for audit, it would be on that basis.
>
> Fred F.

If you can more properly describe the process, please do.
Since I don't believe the depreciation schedules even requires you
to list an aircraft specifically, clearly it can't be used as an
initial criterion. But such travel expenses vs. income can be
easily tested for and used as a trigger, as I said in another post.

As for 'random' audits, from what you say, entities (people
or corporations) are in no danger whatsoever of being
audited if they report earning and expenses according to
industry norms. Somehow, this doesn't ring true.

[TaxSrv]

"Tony Cox" wrote:
> > The potential effect of claiming private
> > aircraft expenses is that they tend to be large, inflating travel
> > expense deductions relative to size and scope of the business. If
> > selected for audit, it would be on that basis.
> > Fred F.
>
> If you can more properly describe the process, please do.

Way off topic, but the IRS computer use a multivariant statistical
analysis (discriminant function), which only in part weighs deductions
against income.

> But such travel expenses vs. income can be
> easily tested for and used as a trigger, as I said in another post.

They cannot easily program the big computer to do that, nor would
they, as this method was used up to about 1970 and was scrapped as
unproductive.

> As for 'random' audits, from what you say, entities (people
> or corporations) are in no danger whatsoever of being
> audited if they report earning and expenses according to
> industry norms. Somehow, this doesn't ring true.

Filing such a return is a criminal offense even without proof of tax
evasion purpose. In the realm of actual tax fraud, taxpayers don't
make up income/deductions in a manner such as using industry averages,
so tax criminals must know this is a most foolish way to go about it
(and legally they are wise).

It is a myth that when returns are processed, IRS people look for "red
flags," except for extreme situations like tax protest returns.
Further, the number of returns filed which claim business travel in
single-engine aircraft would be very small according to GAMA
statistics, so there's little reason for IRS to consider it a big
compliance problem. The issue gets covered in the normal course of
audit selections.

Fred F.

[Robert M. Gary]

"Tony Cox" > wrote in message . net>...
> "Robert M. Gary" > wrote in message
> om...
> > My graduate law class just covered legal entities. By luck my partner
> > and I had registered our Mooney in a Mutual Benefit Corp (C-corp).
> >
>
> What is a "Mutual Benefit Corp"? A non-profit? As I remember, you'll
> need to file more papers to avoid the minimum franchise tax of $800 (CA),
> and will need to continue to pay that fee until your status is approved
> (which can take over a year).

A Mutual Benefit Corp is already set up as non-profit. Once to corp is
approved you are already exempt from the $800/yr. You just need to
file to show that you don't make money.

> > Had
> > we not, the attorney teaching the class said we would probably be
> > considered "Partners" under the eyes of the law. If we had just put
> > the plane in our names we would have been "Partners". As near as I can
> > tell "Partners" is the laws punishment for not doing anything else,
> > "Partners" happens automatically by default. "Partners" is the worse
> > case scenario because it comes with unlimited liability.
> >
>
> There are other ways of protecting yourself against liability than forming
> a corp. The extra insurance is often cheaper than messing with the
> paperwork of maintaining a corp (if you can get a 'flat' policy).

Can you buy insurance to protect yourself against non-aviation
activities your partner does while going to the airport?

> > If your
> > partner is driving to the airport and hits a dog, the dog's owner can
> > sue you and take your house.
>
> Perhaps the next class will deal with "piercing the corporate veil".
> You might not be as enthusiastic about corporate ownership after
> that.

It can actually be pretty tough to break, otherwise no one would ever
both with corporations. However, you do have to careful. If you load a
plane over gross and crash into someone, the corp is going to do you
any good, but it won't hurt you either.

-Robert

[Robert M. Gary]

"Rob Thomas" > wrote in message >...
> I chose to go with a LLC and deal with the $800 excise tax every year. It's
> really silly that they charge that much for the "opportunity to conduct
> business within California." However, the LLC provides me with protection
> and allows me not to have to deal with maintaining two entities for tax
> purposes (my LLC is where I make my income BTW). The $800 is also
> deductable, so depending on your tax bracket you should recoup $200 or so.
>
> The California C-Corp has a minimum tax of $800, so any year that it doesn't
> bring in income, you still owe $800. Many folks get burned by that by not
> properlyl shutting down the C-Corp after they are done with it and the State
> merilly charges $800 and fees and penalties. Then someone is shocked to see
> a $5000 bill from the State a few years down the road.

That's what I like about the Mutual Benefit Corp. You're already set
up as non-profit the moment your articles are approved.

[Casey Wilson]

"Robert M. Gary" > wrote in message
m...
> "Rob Thomas" > wrote in message
>...
> > I chose to go with a LLC and deal with the $800 excise tax every year.
It's
> > really silly that they charge that much for the "opportunity to conduct
> > business within California." However, the LLC provides me with
protection
> > and allows me not to have to deal with maintaining two entities for tax
> > purposes (my LLC is where I make my income BTW). The $800 is also
> > deductable, so depending on your tax bracket you should recoup $200 or
so.
> >
> > The California C-Corp has a minimum tax of $800, so any year that it
doesn't
> > bring in income, you still owe $800. Many folks get burned by that by
not
> > properlyl shutting down the C-Corp after they are done with it and the
State
> > merilly charges $800 and fees and penalties. Then someone is shocked to
see
> > a $5000 bill from the State a few years down the road.
>
> That's what I like about the Mutual Benefit Corp. You're already set
> up as non-profit the moment your articles are approved.

Wrong!

As a former president of the board of a nonprofit corporation in
California I am very familiar with the requirements for a nonprofit
corporation. Go to the IRS website and research the requirements for a
federal 501(c)(3) determination before you go any further.
The state of California does NOT determine the nonprofit status of a
corporation. The IRS issues a letter of determination. The Attorney General
and Franchise Tax Board, providing some other requirements are met, rely on
the IRS determination.
Nonprofit status is NOT automatic. There is significant paperwork to
submit for to the feds to establish the status.
The fact that a corporation does not show a profit does NOT make it a
nonprofit corporation.
The fact that a nonprofit corporation increases its net worth year after
year does not invalidate its nonprofit status.

[Tony Cox]

"Robert M. Gary" > wrote in message
om...
>
> A Mutual Benefit Corp is already set up as non-profit. Once to corp is
> approved you are already exempt from the $800/yr. You just need to
> file to show that you don't make money.

This must be new. When I was on the board of a flying club
some years back, we had to apply for non-profit status (through
the IRS, not CA). As I remember, it took over a year to come
through. We also made money (well, had a small positive retained
earnings) from time to time without having to pay tax. The point is
that you don't *intend* to make money.

>
> Can you buy insurance to protect yourself against non-aviation
> activities your partner does while going to the airport?

General liability insurance probably covers it. The point is not that
a corporation is necessarily *wrong*, just that there are other ways
to achieve what you want. Maintaining a corp is a pain in the arse,
with big penalties if you bugger it up -- penalties for not filing things
on time, worries about people piercing the corporate veil, directors
being liable for errors and omissions. Talk to your insurance agent.

> >
> > Perhaps the next class will deal with "piercing the corporate veil".
> > You might not be as enthusiastic about corporate ownership after
> > that.
>
> It can actually be pretty tough to break, otherwise no one would ever
> both with corporations. However, you do have to careful. If you load a
> plane over gross and crash into someone, the corp is going to do you
> any good, but it won't hurt you either.

Depends how tough your opponents lawyer is, and how much money
*you* have! They may well try, and you'd have to defend. Even if you
are squeaky clean, it'd be big bucks. It may even be that setting up
the corporation deliberately to avoid personal liability is sufficient to
invalidate it. And even if the liability in some accident is finally pinned
on the corporation, you - as a director - may end up under the spotlight
for not properly running the operation of the corporation. I've know
wealthy people who have refused to be corporate officers because
of just such concerns.

One big advantage you've not touched on. Having the corp own the
plane makes it much easier for 'partners' to come and go. And since
the plane title doesn't change, there's no question about liability for
use tax no matter which states the 'partners' live.

[Robert M. Gary]

"Casey Wilson" > wrote in message >...
> "Robert M. Gary" > wrote in message
> m...
> > "Rob Thomas" > wrote in message
> >...
> > > I chose to go with a LLC and deal with the $800 excise tax every year.
> It's
> > > really silly that they charge that much for the "opportunity to conduct
> > > business within California." However, the LLC provides me with
> protection
> > > and allows me not to have to deal with maintaining two entities for tax
> > > purposes (my LLC is where I make my income BTW). The $800 is also
> > > deductable, so depending on your tax bracket you should recoup $200 or
> so.
> > >
> > > The California C-Corp has a minimum tax of $800, so any year that it
> doesn't
> > > bring in income, you still owe $800. Many folks get burned by that by
> not
> > > properlyl shutting down the C-Corp after they are done with it and the
> State
> > > merilly charges $800 and fees and penalties. Then someone is shocked to
> see
> > > a $5000 bill from the State a few years down the road.
> >
> > That's what I like about the Mutual Benefit Corp. You're already set
> > up as non-profit the moment your articles are approved.
>
> Wrong!
>
> As a former president of the board of a nonprofit corporation in
> California I am very familiar with the requirements for a nonprofit
> corporation. Go to the IRS website and research the requirements for a
> federal 501(c)(3) determination before you go any further.

IRS?? IRS is federal.

> The state of California does NOT determine the nonprofit status of a
> corporation. The IRS issues a letter of determination. The Attorney General
> and Franchise Tax Board, providing some other requirements are met, rely on
> the IRS determination.

Incorrect. The California Franchise Tax Board does. The form is FTB
3500. There is no requirement that you file anything with the IRS
before filing out this form (nor does the form even ask about Federal
Status). In fact the state is VERY explicit that state non-profit
status is determined independent of feder. You fill this out when you
incorporate.


> Nonprofit status is NOT automatic. There is significant paperwork to
> submit for to the feds to establish the status.
> The fact that a corporation does not show a profit does NOT make it a
> nonprofit corporation.

But since the fed's don't have a minimum tax, no one cares about
federal status. Unless of course you have a company that is paying
saleries, etc.

[Robert M. Gary]

(Robert M. Gary) wrote in message >...
> "Tony Cox" > wrote in message . net>...
> > "Robert M. Gary" > wrote in message
> > om...
> > > My graduate law class just covered legal entities. By luck my partner
> > > and I had registered our Mooney in a Mutual Benefit Corp (C-corp).
> > >
> >
> > What is a "Mutual Benefit Corp"? A non-profit? As I remember, you'll
> > need to file more papers to avoid the minimum franchise tax of $800 (CA),
> > and will need to continue to pay that fee until your status is approved
> > (which can take over a year).
>
> A Mutual Benefit Corp is already set up as non-profit. Once to corp is
> approved you are already exempt from the $800/yr. You just need to
> file to show that you don't make money.

I misspoke a little on this (after checking my paperwork). You want to
file a 3500 with the FTB when you incorporate. That form allow you to
wave the minimum state franchise tax. Its a pretty easy form. State
statute puts NO LIMIT on the number of retroactive years you can
request.

-Robert

[Robert M. Gary]

"Tony Cox" > wrote in message . net>...
> There are other ways of protecting yourself against liability than forming
> a corp. The extra insurance is often cheaper than messing with the
> paperwork of maintaining a corp (if you can get a 'flat' policy).

Another problem is that there is no insurance out there that
guarantees no one will sue you and take your house away from you.
Insurance relies on the assumption that anyone suing you will settle
with the insurance company and choose not to ask the court to take
your property.

[Tony Cox]

"Robert M. Gary" > wrote in message
om...
>
> But since the fed's don't have a minimum tax, no one cares about
> federal status.

You should, because they'll want at least 15% of your
retained earnings if you don't obtain non-profit status.

> Unless of course you have a company that is paying
> saleries, etc.

That has nothing to do with anything. Paying salaries
(and those filing requirements) are the same regardless
of profit or non-profit, corporation, partnership or
whatnot.

Please do yourself a favour, now that you have your
corporation and plane, by reading up on exactly what
you've let yourself in for. Nolo press have a good
selection of guides and books at www.nolo.com.
Setting out on the right foot will be cheaper and less
hassle than trying to correct mistakes later on.

[Tony Cox]

"TaxSrv" > wrote in message
...
> "Tony Cox" wrote:
>
> > As for 'random' audits, from what you say, entities (people
> > or corporations) are in no danger whatsoever of being
> > audited if they report earning and expenses according to
> > industry norms. Somehow, this doesn't ring true.
>
> Filing such a return is a criminal offense even without proof of tax
> evasion purpose. In the realm of actual tax fraud, taxpayers don't
> make up income/deductions in a manner such as using industry averages,
> so tax criminals must know this is a most foolish way to go about it
> (and legally they are wise).

Yes, but legality aside, how exactly would they get caught if
not through a random audit? If selection (for audit) is predetermined
by income/deduction criteria, then filing according to industry averages
would seem to be a rather sensible strategy for a tax criminal to pursue.
Assuming, of course, that they would pay less tax in the process.

[Casey Wilson]

"Robert M. Gary" > wrote in message
om...
> "Casey Wilson" > wrote in message news:<ooe2c.70522> >
As a former president of the board of a nonprofit corporation in
> > California I am very familiar with the requirements for a nonprofit
> > corporation. Go to the IRS website and research the requirements for a
> > federal 501(c)(3) determination before you go any further.
>
> IRS?? IRS is federal.
>
> > The state of California does NOT determine the nonprofit status of a
> > corporation. The IRS issues a letter of determination. The Attorney
General
> > and Franchise Tax Board, providing some other requirements are met, rely
on
> > the IRS determination.
>
> Incorrect. The California Franchise Tax Board does. The form is FTB
> 3500. There is no requirement that you file anything with the IRS
> before filing out this form (nor does the form even ask about Federal
> Status). In fact the state is VERY explicit that state non-profit
> status is determined independent of feder. You fill this out when you
> incorporate.

Maybe not before, but...

As copied from the California Codes

CALIFORNIA CODES
GOVERNMENT CODE
..
(f) "Nonprofit organization" means any organization qualifying
under Section 501(c)(3) of the Internal Revenue Code in the preceding
tax year...

.....oh, by the way, the corporation is filing the 990 or 990EZ federal
income tax statements, right?
The one at http://www.irs.gov/pub/irs-pdf/i990-ez.pdf?