BUSINESS USE DETAILS MUST BE TRACKED:
Don’t Let Insufficient Record Keeping Deprive You of Business Deductions to Which You are Entitled
Expenses directly related to the business use of aircraft are tax deductible and can add up to big savings for a company. However, the expenses related to personal and entertainment use of business aircraft cannot be taken as business deductions. To claim the aircraft expenses business expenses, a company must be able to substantiate – to the IRS’s satisfaction – that the expenses were indeed incurred during a business use of the aircraft.
Proper flight use substantiation is not defined by the IRS. However, past IRS audit reports show that the details of each flight of a business aircraft should be documented.
Incomplete Records Can Result in Complete Disallowance
The IRS has been known to disallow all business deductions for aircraft expenses for companies that didn’t have complete information for each destination and purpose of each person on each flight. In cases with mixed personal and business use of corporate aircraft, complete disallowance of all business deductions has occurred despite correct documentation for some of the flights, because so many of the flights were inadequately documented.
Don’t let this happen to you. Make sure you have the documentation necessary to support the business expenses of your private aircraft.
What Does Your Flight Log Need To Include?
To ensure your best chance of passing an IRS audit of deductions related to business flights on a private aircraft, you must have complete documentation for each flight leg taken, i.e., a flight log, which includes all of the following:
- Whether the aircraft in questions was chartered, leased or owned by the company or a related entity;
- Date of the flight;
- Departure location of flight;
- Destination of flight;
- Mileage of each flight leg;
- Number of seats on the aircraft;
- For each passenger on aircraft provide
- the full name and
- the purpose of travel for each leg of that person’s trip, i.e., company business, personal, or personal entertainment;
- For each passenger travelling for company business purposes, also provide
- the business relationship of the passenger with the company; and
- what his or her specific business purpose is for the flight
- For each passenger travelling for personal purposes, also provide
- Whether the passenger is a “specified individual”, guest or relative of a “specified individual” as defined in 26 USC § 274(e)(2)(B),
- Whether the passenger is a “control employee”, guest or relative of a “control employee” as defined in Internal Revenue Code § 1.61-21(g)(8), and
- What amount, if any, the employee, owner, shareholder or officer reimbursed or paid the company for the personal flight.
For more information on aviation taxes and maximizing your deductions, please contact Sue Carriere (firstname.lastname@example.org) or Ty Little (email@example.com).
Carriere & Little LLP is an aviation business law firm. We specialize in meeting the business and legal needs of those who own, operate, manage, buy, and sell aircraft. Our services include eliminating or reducing sales tax at time of purchase, reducing risk and complexity by creating ownership and operating business structures, and adding value by providing thoughtful expert advice. Whether you leverage aviation in your business or aviation is your business, we are here to serve you.