Aviation Tax Update About ATC Founded in 2003 Offices in Columbus, - PowerPoint PPT Presentation

The CARES Act & Tax Advantage of f Business Aviation Daniel Cheung CPA Aviation Tax Consultants LLC May 13, 2020 Cutter Aviation Aviation Tax Update

About ATC  Founded in 2003  Offices in Columbus, Indiana and Scottsdale, Arizona  Specializes in income, sales and use tax planning for business aircraft owners  Helps clients and their advisors navigate the myriad of regulations between IRS, state tax laws and FAA Regulations

Topics of Discussion  Income tax planning  The CARES Act incentives  Sales and use tax planning  Closing remarks

Income Tax Planning

Candidates for a Business Aircraft  Those who need to travel for their businesses  Business owners and self-employed individuals  Not retirees or W-2 earners

100% Bonus Depreciation  Increased from 50% to 100% since the JOBS Act in December 2017  Applies to all business aircraft  Planning required to address other tax codes  Hobby loss  Passive activity loss  Related party leasing  Personal use

IRS Audit Risk  A myth…  Certain ownership structures can indeed draw unnecessary attention to the tax retur  One important planning objective is to mitigate IRS audit risk

The CARES Act 2020

CARES Act – effective through 12/31/2020  Net Operating Loss Carry-back regulations reinstated  Applies to corporate (C corp) and individual taxpayers (S corp and LLC)  Overall tax loss in 2020  2020 tax loss can be carried back to 2015 tax year as a deduction  Can result in tax refund for income taxes paid in 2015  Complying with other regulations to insure loss can be deductible

CARES Act – example  2020 taxable income before aircraft - $2M  Purchase $3.2M business aircraft in 2020, 100% business use  Net tax loss - 2020 $(1.2M)  Income tax saved in 2020 - $700,000, based on 35% tax bracket  $(1.2M) loss can be carried back to 2015 tax year.  Tax refund due - 2015 $420,000  Total tax refund due - $1,120,000

Piper M600 2020 Taxable Income $2,000,000 Acquisition of a Business Aircraft $3,200,000 100% Bonus Depreciation $(3,200,000) 2020 Tax Loss $(1,200,000) Income Tax Saved - 2020 35% $(700,000) CARES Act Net Operating Loss Carryback: 2020 Tax Loss $(1,200,000) Income Tax Refund Due - 2015 35% $(420,000) Total Income Tax Saved $1,120,000

Daher TBM-940 2020 Taxable Income $2,800,000 Acquisition of a Business Aircraft $4,500,000 100% Bonus Depreciation $(4,500,000) 2020 Tax Loss $(1,700,000) Income Tax Saved - 2020 35% $(980,000) CARES Act Net Operating Loss Carryback: 2020 Tax Loss $(1,700,000) Income Tax Refund Due - 2015 35% $(595,000) Total Income Tax Saved $1,575,000

Pilatus PC-12NGX 2020 Taxable Income $3,400,000 Acquisition of a Business Aircraft $5,500,000 100% Bonus Depreciation $(5,500,000) 2020 Tax Loss $(2,100,000) Income Tax Saved - 2020 35% $(1,190,000) CARES Act Net Operating Loss Carryback: 2020 Tax Loss $(2,100,000) Income Tax Refund Due - 2015 35% $(735,000) Total Income Tax Saved $1,925,000

HondaJet HA-420 2020 Taxable Income $3,400,000 Acquisition of a Business Aircraft $5,500,000 100% Bonus Depreciation $(5,500,000) 2020 Tax Loss $(2,100,000) Income Tax Saved - 2020 35% $(1,190,000) CARES Act Net Operating Loss Carryback: 2020 Tax Loss $(2,100,000) Income Tax Refund Due - 2015 35% $(735,000) Total Income Tax Saved $1,925,000

Pilatus PC-24 2020 Taxable Income $7,000,000 Acquisition of a Business Aircraft $10,000,000 100% Bonus Depreciation $(10,000,000) 2020 Tax Loss $(3,000,000) Income Tax Saved - 2020 35% $(2,450,000) CARES Act Net Operating Loss Carryback: 2020 Tax Loss $(3,000,000) Income Tax Refund Due - 2015 35% $(1,050,000) Total Income Tax Saved $3,500,000

Sales and Use Tax Planning

Sales / Use Tax Planning  Sales tax can be due at closing location  Use tax can be due at the home base of the aircraft  Where the LLC is set up is irrelevant  However, use tax can be due to more than one jurisdiction, for example second home, second office, etc.

Sales / Use Tax Planning  Rental & leasing exemption  Interstate commerce exemption  Commercial use exemption

Closing Remarks

Adding Value  Complement our client’s existing team of advisors  Provide expertise knowledge of the interaction of tax and aviation regulations  Experience in tailoring an ownership structure that best suits our client’s overall financial and tax planning objectives

Contact Us Office: 812-342-9589 www.aviationtaxconsultants.com Daniel Cheung: 317-716-3388 (cell) daniel@aviationtaxconsultants.com Fred McCarter: 812-371-5322 (cell) fmccarter@aviationtaxconsultants.com Kyle Kamman: 812-350-2147 (cell) kyle@aviationtaxconsultants.com