On January 2, 2013, Congress completed passage of a bill addressing, at least in part, the so-called “fiscal cliff” of impending tax changes slated to occur at the end of 2012. President Obama is expected to quickly sign the package into law. Of particular interest to those acquiring aircraft in 2013 or 2014, the law will extend the purchasing incentive of bonus depreciation, making it broadly available in 2013, and available to certain aircraft acquired in 2014 pursuant to contracts entered into this year.
For owners of business aircraft who find themselves flying fewer hours per year than their aircraft can reasonably support, an attractive option is often to contract with a Part 135 charter company to use the excess capacity of the aircraft to sell flights to the public. Such an arrangement can create a valuable revenue stream from charter customers, which often serves in addition to the owner’s primary reason for the aircraft—i.e., enhancement of the owner’s business through Part 91 flights to meet with customers,
Economic Stimulus Incentives Apply to 2012 New Business Aircraft Deliveries
New aircraft purchases and new equipment purchases for used aircraft are subject to a special 50% bonus depreciation allowance in 2012. In certain cases, depending on the details of the contract through which the 2012 aircraft is acquired, the bonus depreciation may be enhanced to 100% of the aircraft or component cost. The additional first year depreciation deduction is allowable both for regular income tax purposes and alternative minimum tax purposes.
“T and E and out by three,” is a long-standing adage among IRS agents, reflective of the fact that Congress has elevated the recordkeeping requirements for travel and entertainment expenses, and auditors honed-in on these technicalities may be able to make quick adjustments leading to hefty tax bills. The rules do not uniquely target aircraft. Instead, all travel deductions—irrespective of the means of transportation—are subject to enhanced documentation requirements. Failing to meet these technicalities can mean disallowance of expense deductions,
The best way to protect your aircraft deductions is travel for business and thoroughly and consistently retain documents you can use on audit to show (1) the business reason for the travel, including the business benefit you expect from it, (2) the dates of departure and return, and the number of days away spent on business, (3) where you went, and (4) the amount of your aircraft expenses. However, sometimes even this is not enough.