Tax-Time Awareness Re: Entertainment Use
New IRS Tax Regulations for personal use of business aircraft may complicate a company's tax implications, especially when it comes to "entertainment use" of a business-owned aircraft, according to The Metropolitan Corporate Counsel (TMCC). The key for affected companies lies in determining the amount of disallowed deductions for a flight, which may amount to more than an individual flight's costs, says TMCC. In this case, TMCC says that operating costs, as defined by the IRS, refer to all costs, fixed and variable (fuel, crew salaries, landing and hangar fees, maintenance, management fees, insurance and more), and may be determined by one of three methods. TMCC warns that entertainment use disallows deduction of certain aircraft ownership and use costs -- and there can be more pitfalls, including deadhead flights after entertainment flights and detrimental effects on aircraft depreciation recapture. However, the regulations only apply when a business aircraft is used for entertainment purposes and so entertainment use tax involving that aircraft can be avoided altogether if the company charters an aircraft when entertainment is the goal, according to TMCC. Note: AVwebBiz is not a tax service -- consult with your preferred tax services provider or accountant for guidance.