Popa - Pilatus Owners and Pilots Association

26
LONG TERM AIRPLANE TAX
PLANNING IMPACTED BY
ANNOUNCED TAX HIKE
TARGETING THE “NEW RICH”
The new Democratic Administration has announced that
increased income, Social Security and estate taxes are
imminent for the newly defi ned rich (those who have taxable
income of more than $250,000 per year). The effi cient use
of your aircraft may help you earn the income necessary to
fund increased tax liabilities; proper ownership and operation
structuring may soften their impact.
Consider the following announced tax initiatives:
1) Individual income tax rates will rise for those earning over
$250,000 per year from 35% to 39%.
2) The maximum earnings subject to Social Security Tax
will be replaced by an exempt gap; earned income will be
subject to Social Security with a possible exempt gap between
approximately $100,000 and $250,000. (This provision was
announced during the Presidential Campaign and was not
announced as part of the 2009 Budget Proposal).
3) Itemized deductions will be limited for individuals with
incomes over $250,000.
4) Capital gains taxes will increase from 15% to 20%
5) Estate taxes will not expire as scheduled in 2010. The 2009
rates (45%) and exemptions ($3,500,000 unifi ed credit) will
be extended. Inherited property will generally continue to be
received with a new basis of fair market value at the date of
death.
Although tax planning for aircraft ownership cannot be
made in a vacuum, considerations include the following:
1) Corporate income tax rates will generally be less than the
maximum individual rates – aircraft depreciation deductions
will generally provide greater tax savings when owned
individually rather than corporately.
2) Social Security Taxes are imposed on earned income. An
aircraft owned by an entity that generates earned income may
reduce Social Security Tax, while a leasing company that
generates passive or investment income will not.
3) Reduced itemized deductions will reduce the benefi t of
unreimbursed business expenses. It will be increasingly
important to establish a trade or business to move deductions
“above the line.”
4) Increased capital gain tax rates will mirror increased
individual rates but remain at about one half of regular rates.
Aircraft appreciation often enjoyed in good economic periods
will still be preferentially taxed when held by individuals and
fl ow through entities.
5) With estate taxes here to stay, the benefi ts of basis step
up should be planned for. An aircraft held by an individual,
limited liability company, or partnership is taxed differently
than one held by a corporate owner at his death.
Aircraft ownership and operation planning involves not only
tax issues, but business liability and regulatory issues as well.
In a changing tax landscape, it is now important to recognize
that a long term asset requires long term planning.
March 4, 2009
Jonathan Levy, Esq. Louis M. Meiners, Jr., CPA
Legal Advisor Aviation Tax Consultant
www.advocatetax.com
Phone (888) 325-1942
Advocate Consulting Legal Group, PLLC is a law fi rm whose practice
is limited to serving the needs of aircraft owners and operators relating
to issues of income tax, sales tax, federal aviation regulations, and
other related organizational and operational issues.
IRS Circular 230 Disclosure. New IRS rules impose requirements concerning
any written federal tax advice from attorneys. To ensure compliance with
those rules, we inform you that any U.S. federal tax advice contained in this
communication (including any attachments) is not intended or written to be
used, and cannot be used, for the purpose of (i) avoiding penalties under
federal tax laws, specifi cally including the Internal Revenue Code, or (ii)
promoting, marketing or recommending to another party any transaction or
matter addressed herein.
Photo Courtesy of Don Peterson