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Business Travel RUNWAY TO SUCCESS
Run Your Airplane Like A Business
 We've written about how aircraft owners need to be able to justify business use of an airplane in order to deduct the aircraft and its use as business expenses.
If you work for a general aviation-related company, or an aviation magazine for that matter, then likely all or almost all of your use of the airplane can be considered incidental to your business and therefore you won't run into problems with the tax man (or woman).
But the tax law changes that took effect in October 2004 have had a profound effect on non-flying business folks—doctors, lawyers and other business owners who may use their airplanes three or four times a year for business, which is not nearly enough to write off the entire cost of owning the airplane.
For those people, experts offer a simple solution that is not nearly as bad as it might sound: rent out your airplane.
Before you shake your head and turn the page in disgust, listen up: We're not suggesting turning your brand new Columbia 400 or SR22-GTS over to the local flight school. What we're suggesting is setting up an aircraft rental company that owns the airplane and rents it out to a select few, highly reliable pilots who will treat your bird as their own.
Lee Goldberg, a Westchester, NY, attorney who specializes in aircraft management and acquisitions, suggests that a separate company be set up to operate the aircraft, and that the purpose of the company be to make money renting out the airplane on an hourly basis. Note that the company doesn't actually have to profit, but it needs to be set up so that it could in order to meet the requirements as a tax deduction.
"The taxpayer has to have an expectation of profit," he said. "His expectation doesn't have to materially realized, but he has to have an expectation."
Say you rent your airplane to a pilot friend who flies frequently for business. You know the person well, you know how many hours they have and how much they fly. You know your schedules will work well together, and they want to fly your airplane. What could be better?
The money you make from renting that person your airplane for 50 or 100 hours a year will go a long way toward justifying your business use of the aircraft, meaning you can fly it yourself for pleasure and still be able to write-off the airplane as a business expense.
Because they are renting, every hour a renter flies constitutes business use of your airplane, regardless of what they do with it. Meaning, if your renter flies the family for a weekend getaway in your airplane and pays to rent the airplane from you, that constitutes business use because the "business" was renting the airplane.
All of this effectively increases the amount of time you can legitimately use it for personal use. In fact, Goldberg said as long as the owner pays the aircraft company a legitimate hourly rental fee, his or her personal use can count as business use as well.
Most owners will set up a separate corporate entity to protect them from liability if something happens to the airplane. Goldberg said the key is to to set up the company as an aircraft rental company, and to create a structure that not only shelters you from liability, it should also operate as a rental business. "I really have to be able to show that I'm going into the business of aircraft leasing, and in doing that, I'm buying an airplane to do that," Goldberg said.
To do it properly, Goldberg suggests documenting your efforts by running classified ads for potential renters, performing the same 50- or 100-hour checks that are required of traditional flight clubs, and making sure that your hourly rental fee covers not only your direct and indirect operating costs, but also a small profit margin as well.
If you rent the airplane enough hours to cover your annual costs and return a dividend, great.
If not, you're still running an aircraft leasing business, albeit one that loses money. In terms who flies your airplane, you can still afford to be selective. Goldberg said you can choose to rent the aircraft to just one or two pilots you know well, or you can open the airplane up to several pilots and run it as a true rental business.
The effect on your insurance rates should be minimal, but will depend on who you allow to fly the plane. The pilots you rent to should be listed on the airplane's insurance policy as named insureds, and any additional cost can be incorporated into the hourly rental fee, Goldberg said.
Unlike a flight school which can have any number of pilots or students of all skill levels flying their airplanes, private rental of an aircraft can be limited to pilots with specific training and experience in your airplane, reducing if not completely eliminating any increased cost in premiums.
One suggestion Goldberg offers is to be sure to rent the aircraft dry. Unlike flight schools which fly mostly local flights and can make economical fuel arrangements, your aircraft will likely be flown to remote fields with varying fuel prices. Renting the aircraft dry ensures that the person flying it will deal with the fuel costs, and eliminates a potentially costly variable from your company's income.
Is all this too much trouble? Probably not. Business aircraft can be depreciated faster than aircraft used primarily for fun, and the costs to set up and run a rental company like this can range from $1,000 to $3,000 per year. Yet if you line up two or three reliable pilots to rent from you, you could far more than that in rental fees, turning your airplane into a profitable side business.
And best of all, your efforts will free the airplane up for some of that precious leisure travel that is a big part of why you bought the airplane to begin with.
—Sean Fulton
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