Tax Strategy Question.

[KevBac]

I'm quite new to this (PPL(H) 60 hrs and thinking of going further.

A couple of operators have suggested 'Maximum Tax Strategy' advice for cost-cutting.

Can somebody enlighten me please?

[RDRickster]

First, consult with your accountant as everything I'm about to say could be completely WRONG. Second, start your own company or work for a company that is related in the aviation or training field. You can "write off" the expense of your training as long as it helps you in your profession for advancement or for business purposes. It can NOT have ANY flavor of recreation to it whatsoever.

You can create a company as sole proprietor, limited liability company, or you can go through the expense of incorporation. The first two can be done OVER THE PHONE with the IRS (you have to mail them the paperwork afterwards). Don't forget to register the business with your State, as well. Make sure you have separate bank accounts for your business. Simply pay for all training expenses from your business account as a legitimate expense.

Use your common sense. For example, if you work as a clerk in your day job... don't put "clerk" as your occupation on your 1040. Put "trainer" or something that is related to aviation (or training) and make sure you CAN JUSTIFY IT.

Since I am a technical trainer, it was a natural extension for me to write off 99.5% of all my training expenses. To wit, I am on a path to CFI as way to generate new revenue streams in the training arena. Keep meticulous expenses, and write notes on things that aren't clear. That will be important when you do your taxes, later.

Finally, it is best to pay an accountant to prepare your taxes. They have the programs and experience that will help detect if your return has anything that might trigger an audit. I use H&R block because they guarantee their returns and will sit by you IF you are audited (at no additional expense). Just don't deal with anyone who is hired for seasonal (tax season) help - get one of the regular staff.

[B Sousa]

Above was a start. Going a little further find an Accountant familiar with Aviation. Places like www.AOPA.org can refer you.
It is said that you can ask 9 IRS experts a questions and get 9 different answers. I firmly believe that.
Im also hoping that the individual who asked the question is from the U.S. not the U.K. as this becomes useless info....
You can do just about anything you want when it comes to the IRS, just be prepared to prove your right. Even if your wrong and they buy off on it, your right.
All the rules are in the book, and you as an individual should be familiar with them. Remember your Accountant or Attorney will represent you right up to the time you go to jail. As a Pilot there are lots of tax benefits, but you must have an income before you have an expense. Unless its training or job enhancement.
Some examples I have seen in my travels really put a Burr in my Saddle when I have to pay taxes. One is the folks who refuse to pay because they say its against the law, unfair tax and whatever. As far I have seen none have been hammered in the last 10 years. Really not much incentive for anyone to pay after seeing these folks skate.
Of course there are those high Almightys on Wall Street who hammered millions of little folks who were looling for a better life. They went FED Golf Course for a few years, paid a few million in fines and walked out of the joint as ex-felon Millionaires.
I guess its just us Peons who dont have the Balls that seem to pay every year, it certainly would be nice not too..
Hope I didnt get off course too far, I just Rant a lot sometimes.

[Helinut]

It is an obvious point, but any comments about Tax will depend entirely upon which country everyone means. KevBac comes from Lincoln, in the UK, apparently. I assume he is interested in UK tax answers, unless he wants info about elsewhere.

[The Nr Fairy]

Kev :

Making the assumption you're in the UK, give Customs and Excise a ring, get the VAT registration form, register as a sole trader, then claim VAT back on a quarterly basis.

You can claim 6 months back from date of registration - this is a date you specify on the form - and for small numbers of invoices a simple spreadsheet will suffice - I have one which calculates the figures to put on the VAT return.

Is it worth the effort ? Yup. I claimed back almost £1700 (almost $2500) for my first quarter which included all the VAT paid on my CPL modular course. This quarter is less exciting - but the VAT refund is going straight into my Jetbox conversion fund !

[KevBac]

Sorry all. Forgot to mention I would be doing this in the UK.

Thanks, however, for the replies.

[JFDI]

Nr Fairy:
What sort of a grilling can one expect from the C&E?

When registering as a sole trader do you have to prove "business intent"?

Or to put it more simply, will this work for recreational flying?

Thanks in advance

[The Nr Fairy]

JFDI :

The "grilling" I had was from a C&E inspector lady. She turned up just to make sure I knew what I was doing - providing all invoices, a printout of the spreadsheet which calculates my VAT return, and talking about what I was doing satisfied her on all accounts.

I had to show "an intent to trade", i.e. it is likely I'll produce an invoice to someone with a VAT element. I did that with a non-commital letter from the organisation where I did my CPL.

For recreational flying, I think you'll be on a sticky wicket. If you have a business and use the aircraft in connection with business travel, I'm sure you should be able to claim back a percentage.

As ever, I'm a helicopter pilot and IT person - not necessarily in that order - and not a VAT or income tax specialist so any advice carries a large "CONFIRM FOR YOURSELF" sticker.

[RW-1]

I was able to, with the assistance of H&R Block, to take a credit on my taxes for my training, as it falls under vocational education. Reduced the tax I paid this year, and I retro filed for the last 2 as well, gained about $2k in checks back from the IRS.

I'll be claiming my new Garmin this year, as I'll use it when flying as a related expense.

Basically, consult with a tax specialist, they can tell you what you can do, and how to do it. :)

[RDRickster]

Yup! I wrote off my Garmin 196 and my Bose Aviation-X headset doing the exact same thing. If I remember correctly, you have the option to amoritize the expense over five years (1/5 cost for each year) OR write the entire expense off the first year only. I chose the latter option to keep it simple.

Also, if you dedicate a room in your house (rent or own) to your business, you can claim aportioned expenses as well. There are a few rules; you can NOT have a bed or couch in that room - it has to be dedicated, you can NOT split home phone bill (phone must be separate line), etc. However, based on the square footage of the room, I was also able to claim a portion of my mortgage and a portion of my electric bill + 100% of computer expenses (including Internet access, e-mail, etc).

Every dollar I save elsewhere is more time for me to fly!

[B Sousa]

Thanks for setting us straight. I didnt know if it was Lincoln, California; Lincoln, Nebraska; or the Land of Lincoln..........
Either way sounds like good info for folks on either side of the pond.......