Month: October 2012

The Obamacare Tax Credit

Obamacare tax credit for small businesses
Employers providing health care coverage to employees get credit

The Obamacare Tax Credit – The Patient Protection and Affordable Care Act (“Obamacare”) permits certain small businesses to claim a tax credit for providing health insurance to their employees.  While there are many different options for claiming the Obamacare tax credit, the following is broad breakdown.  The maximum credit is 35% (25% for charities) of the total cost paid to employee covered health care premiums and expands to 50% (35% for charities) in 2014.  Small businesses may also still claim a deduction for premium expenses paid beyond the allowable tax credit.  This tax credit is transferable between tax years and can even create a refund when no federal taxes are owed. To qualify, a small business: (1) must cover at least 50% of the cost of single (not family) health care coverage for all of its employees; (2) cannot have more than 25 full time employees; (3) and employees must have an average wage of less than $50,000.  A business’ tax credit will vary, but generally, the smaller your business, the larger the tax credit.  An amended tax return can even capture health care tax credit unclaimed in prior years. An experienced tax advisor can assist you in maximizing your tax savings, not just this tax year, but for past and future years.  Contact us.

Weather Weary: How to keep outside conditions from damaging your aircraft

Owning an aircraft is a major investment. Even before you buy one, you need to spend countless hours preparing, training, financial planning, and making proper space arrangements in anticipation of becoming an owner. This is why the idea of keeping it safe and in good condition, is not only invaluable, it’s priceless. But things happen, and weather has a way of surprising us when we least expect it. This can often mean some serious damage to a plane, and even more damage to your wallet.

Each year, numerous aircraft are damaged due to the simple fact that they were not appropriately prepared for inclement weather while on the ground. When your aircraft is parked, wind, and even jet efflux, can be your worst enemy. Even in a hangar that’s not properly equipped, negligence in weather preparation can cost you thousands of dollars, and time. It’s important to take a few simple preventative steps to keep your aircraft safe while it’s parked, to ensure that your plane stays in one piece, and to give you piece of mind.

Aircraft, by nature, are designed to fly. This may sound obvious, but it’s easy to forget that due their aerodynamic structure, even the smallest amount of wind in the wrong direction can lift your plane onto its side, or knock it over. The trick is to use your plane’s aerodynamics to your advantage. Always try and tie your plane into the wind. If your nose is facing into the wind, then the airflow will be distributed evenly over the plane’s surfaces. Make sure that your aircraft is tied very securely, however, as the same airflow can actually lift your plane off the ground, similar to how it would in flight. This is not the type of flight you want.

Make sure that you always employ a proper 3-point tie-down scheme, securing both wings and the tail. Most aircraft parking areas are equipped with fixed tie-down points and will be suitable for the 3-point tie. In the case that they are not, or if fixed tie-down points are just not available, you will need to find physical shelter for your aircraft. Park your aircraft behind something that can block the wind, and is unlikely to move or fall. Make sure any debris near the aircraft is cleared away, as strong winds can lift these things into the air and smash them into your plane.

Most importantly, the best protection against weather damage is to stay aware, and use common sense. If you are next to a plane that is improperly tied down, avoid tying down next to it. If you have a gut feeling that you missed a step while parking, go back and do it again. The time you spend being thorough is nothing compared to the time you’ll spend if you damage your aircraft.

At the end of the day, remember to trust your instincts. If it feels like a bad idea, it probably is. With a good amount of preparation, instinct, caution, and know how, you can keep your plane out of the repair hangar, and in the air. Which, after all, is exactly where you want to be.

Mergers in Aviation: The Hawker Effect

Anyone who is familiar with the aviation industry knows that the past decade has been a tough one economically. A global recession, partnered with high fuel costs and rising operational costs, has had a devastating effect on many in the business. The circumstances surrounding this decade-long slump have caused a ripple affect that can be felt all across the industry. From the largest commercial carriers to the smaller business jet producers, companies have had to “tighten the belt”, metaphorically speaking, to keep from going under. In some cases, this has meant filing for bankruptcy, and facilitating a buyout via acquisition. For others, it means mergers with another business just to stay afloat.

While the merger between Continental and United Airlines grabbed the biggest commercial headlines in 2010, there’s another story that’s grabbing everyone’s attention in the GA world. That story is the eminent acquisition of the bankrupt Wichita-based aircraft manufacturer, Hawker Beechcraft, Inc. Hawker filed for Chapter 11 bankruptcy in May, 2012, after massive layoffs and a steady profit loss had damaged the company beyond repair. The company had admitted to losing $1 billion in the previous two years, and was unable to pay their overall accrued debt of $2.3 billion with the state that they were in.

This is where Chinese aircraft manufacturer Superior Aviation Beijing stepped in. This past July, the company made a $1.70 billion offer to purchase ailing Hawker that was accepted by both parties. The deal is pending approval from a U.S. federal bankruptcy court, and sources close to both parties say the deal should be completed this month. But what does this mean for the future of Hawker? And will this become a bigger trend for other GA aircraft manufacturers in the United States?

If all goes as planned, Hawker will still continue to produce aircraft, but will be downsized in certain areas. The company has already applied to sell vacant land back to the city of Wichita, which will help to cut expenses and recuperate losses. The issue that has many in the industry concerned is that this could happen to other GA manufacturers if they begin to see similar types of profit loss. This could cause struggling manufacturers to merge with each other, rather than run the risk of going bankrupt and being purchased by overseas investors.

Luckily, for a few of America’s bigger manufacturers, the economic outlook for 2013 looks to be on the up and up. Take Cessna, for example, who’s profits have steadily risen this past year, and with an increase in production and new management strategy, hope to keep the current growth trend going for many years to come. If this model is copied, it could keep the majority of GA producers in the black for a long time.

At the end of the day, what the Hawker bankruptcy can teach us is that poor financial management can lead to massive ripple effects. It shows this not only for the company itself, but also for the greater American aircraft production industry. While Hawker should serve as an example, it doesn’t necessarily represent the norm. With a strong financial plan and good management structure, GA manufacturers will be able to adapt to the new global financial climate and weather the storm. This way mergers and bankruptcy hearings will be a somber memory, and not a current reality in the future.

Deduct Your Flying Lessons

Deduct your flying lessons:  Can you take a tax deduction for your flying lessons?  The short answer:  yes, but it depends on your situation and the circumstances. To justify such a deduction, a taxpayer must show that the lessons are a reasonable and necessary business expense and not just helpful or useful.  Alternatively, a taxpayer could argue that the lessons are an educational expense necessary for a job that requires private flight.  The pilot must take due care to make these decisions up front so that he has a good defense in the event of an audit. Unlike in most other areas of US law it is the taxpayer’s burden to prove that a claimed deduction is legitimate.

In early 2012, a U.S. Tax Court considered this question and ruled that an experienced commercial real estate broker’s flight lessons were non-deductible.  The broker’s job involved identifying large properties to sell and drafting detailed brochures for prospective buyers.  From 2005 to 2007 he chartered airplanes to assist in finding and evaluating such properties.  During these flights, a licensed pilot flew the airplane while the broker took photographs that were included in the brochures.  To avoid future expenses of chartering flights the broker took flight lessons and purchased a Cessna 172s aircraft to perform the same task.  He subsequently claimed those flight lessons as an expense of $33,000.00 on his 2007 federal income tax return.  When the claimed deduction was challenged in court, however, he could not provide any receipts or invoices documenting the flight lessons, and therefore could not take a tax deduction for those flying lessons.

Deduct your flying lessons
Can you take a tax deduction for flying this big boy?

Upholding the IRS’ determination, the Court found that the broker failed to prove that flight lessons were an educational expense required for the business of a commercial Realtor   The Court concluded that while evaluating properties from the air may be helpful to a Realtor this particular broker had been able to do so earlier without the necessity of actually piloting a plane.  He could not explain why flight lessons were now required in order to view the properties or obtain aerial photographs.  Regarding the claimed business expense, the broker failed to provide evidence that flight lessons are normal, usual, or customary for commercial Realtor.

Adding insult to injury, the Court made a point of saying that the broker had not acted in good faith for claiming the subject deductions and upheld the 20% penalty assessment.  A taxpayer may be penalized if they act negligently or disregard (careless or otherwise) the tax law.  The Court noted that the broker was a sophisticated taxpayer with 20 years of experience as a licensed financial advisor and commercial Realtor   The Court similarly dismissed the broker’s defense that he just relied on professional advice in setting up his airplane structure.   The Court found broker had also erred in failing to keep financial records regarding the cost and purpose of the flight lessons.

These deductibility rules apply not only to the novice aviator but also those with years of flying experience.  As long as a taxpayer can justify the claimed deduction there is no rule barring that person from advancing their education and improving their rating, however, the taxpayer must continue to demonstrate that such expenses are an ordinary and necessary part of his existing business.  Cases in which the pilot deducts flight lessons in preparation for another career (such as moving from a general aviation pilot to an airline or transport pilot) seldom favor the taxpayer.

Careful planning can avoid the pitfalls illustrated above.  Here the deductions were disallowed not because of a “per se” rule against claiming a deduction for flight lessons but because he failed to demonstrate and document the connection between his real estate business and private flight.  The result may have been different, for example, if there was no viable option for sustaining his real estate business other than to fly privately, perhaps if the taxpayer owned real property spread over a large geographical area or in hard-to-reach places.

Consulting with a knowledge and experienced aviation tax advisor will ensure you’re on the right side of tax law (or a court’s opinion).

Hangar vs. Tie-Down: Where to park your Aircraft

Although overlooked at times, where you store your aircraft is a very important part of being a responsible owner. Whether you decide to hangar it or tie it down, where and how you store your plane can change its re-sale value, extend its longevity, or conversely, cost you a lot of unnecessary expenses. It all depends on how you look at it. So let’s look at the pros and cons of storing your aircraft in a hangar versus keeping it tied down outside.

Obviously hangars can cost a lot of money. Money no object who wouldn’t want the private suite?  While prices differ, hangaring your aircraft can cost you up to $500-$600 per month, which is hundreds more than keeping it tied down outside. Tie-down fees can run anywhere from $50-$100 per month. There are reasons for this.. A hangar offers far better protection from natural elements, therefore reducing potential damage and devaluation of your plane. Tying your aircraft down outside, while costing far less money, will leave it exposed. This may be a wise financial decision if you are in an area where inclement weather is rarely an issue, not so much if you’re basking in the Florida sun or braving a New York winter. Always remember to check prices with FBOs before you land, as prices tend to change based on location.

There are two main types of hangars to consider should you choose that option. The most common single-plane hangar setup is known as a “t-hangar” for its shapeA t-hanger is designed to fit the shape of the body of your plane. It’s narrow in the back for the tail and wide enough for the wings in the front. The other is called a “shared hangar”. Shared hangars are more affordable, though with many planes sharing the same space you run a greater risk of “hangar rash”. Poorly maintained hangars or bad planning can increase your risks of hangar rash.

Tying down your aircraft, if done properly, can be a cost-efficient, and perfectly reasonable way to park at an airport. The best way to do this is known as the 3-point tie-down. The 3-point tie-down involves securely fastening your aircraft by both wings and the tail. If done right this will keep your plane from tipping due to jet/prop efflux or strong winds. Keeping your aircraft tied down rather than hangared can save you thousands of dollars per year, but again, it could cost you more in the long run due to repairs and maintenance in tough climates.

Whether you choose to hangar your aircraft or tie it downthe most important factor is that you feel comfortable where you keep your plane. Peace of mind goes a long way in aviation, and keeping your aircraft in good condition is essential becoming a confident pilot or owner. Always remember to check prices with your destination’s FBOs, and go with what makes you feel the most secure about your aircraft. With proper planning and wise decision-making, you’ll feel more confident about your craft, and how you fly.

Contact us for more information or recommendations to industry experts who can guide you in selecting your best options and help you plan your flights.