CFI's - Do you pay your own taxes?

BoDEAN

New Member
CFI\'s - Do you pay your own taxes?

Landed a new CFI gig, but the catch is that I have to pay my own taxes (1099 forms). Any other CFI's do this? Recommend an easy way for me to manage and do this? Just started the job about a week ago.
 

Stone Cold

Well-Known Member
Re: CFI\'s - Do you pay your own taxes?

1) Get a Quicken-type of program to track all expenditures.
2)Get CFI insurance, if you can afford it...more than likely anywhere from $350-500/per year...do a search on insurance if you don't know what to look for. Business expense.
3)Get an accountant and follow their advice. It is a legitimate business expense and they will help you more than you will ever realize.

I have 1 CFI job that I do pay taxes (weekend work), and 1 where I get a 1099 (weekday afternoon work / freelance). Of course, I am also active duty and married, so you can tell how much free time I have.


txpilot
 

BoDEAN

New Member
Re: CFI\'s - Do you pay your own taxes?

1. I use Microsoft Money
2. CFI insurance through AOPA....you're saying that even though I pay for this now, that it won't directly come out of my pocket because it is now a "business expense?"
3. Average cost of an accountant is?
 

Mr_Creepy

Well-Known Member
Re: CFI\'s - Do you pay your own taxes?

More and more flight schools are making their CFIs "contractors."

Let me warn you. This is illegal in most states and there will be a crackdown soon.

The reason is Worker's Comp (the Politically Correct Injury Insurance formerly known as Workman's Compensation.) They can't get it anymore. There are fewer and fewer companies willing to write comp for CFIs and other "high-risk" pilot groups due to the high rate of comp claims.

Make sure you have a contractors agreement with your flight school. If they require you to be there at certain hours, if they supply you with materials, if they require you to follow their rules and syllabi, or anything else that is employee specific, THEN YOU ARE AN EMPLOYEE.

As long as you have a written agreement that says you are a contractor, YOU won't get in any trouble. They, however, might get in trouble when the Board of Insurance reviews them.

This is starting to happen in Florida. They are mostly after construction workers, but it won't be long before they get around to flight schools and charter companies.

If you really want to protect yourself, start a corporation (subchater S is what I recommend) and have them pay your corporation. This protects you legally. As the owner of a corporation you are exempt from worker's comp requirements.

It really isn't that hard to incorporate and once you get the hang of it the tax benefits are excellent, although you need to watch your paperwork. I use Quickbooks AND an accountant just to be sure!

Make sure you get the Occupational Licenses required as well. The local chamber of commerce usually has courses that tell you how to start a business, and what steps you need to take.

I'm really glad I did. I've learned a TON about business in the last 3 years.
 

Stone Cold

Well-Known Member
Re: CFI\'s - Do you pay your own taxes?

Keep all receipts, invoices, etc. and keep detailed notes on what they were for. For example, if you go to Staples, Office Max, etc to get binders, write a note on there for (student's name), used for, etc. Your CFI insurance should be a write-off (i.e., business expense) since you wouldn't need it if you were not employed as a CFI.

As far as accountants go, find one that will do a free initial consultation with you about what you want and what they can offer. If they know nothing about aviation, find one that does. My accountant happens to do taxes for quite a few military pilots and a few airline pilots, so she has a grasp on what we do.

I definitely agree with John about setting up either an LLC or S-Corp. You may not have very many assets right now, but you also don't want your neck hanging out there to incur a bunch of debt if something happens and you need the corporation to pay, not you (read as house/car/dog taken away).

All these things can be researched on-line at the Small Business Association web-site (www.sba.org, I think) or look in the phone book for the SBA. They will be able to help you out more.

Remember, we teach people a very expensive and possibly dangerous hobby. Cover your a$$ as much as possible.
Fly safely!!
 

MidlifeFlyer

Well-Known Member
Re: CFI\'s - Do you pay your own taxes?

Lots of good advice here. Just a couple of comments.

Yes, your CFI insurance premium becomes a business expense that may be deducted in calculating taxable income. So do a lot of other expenses (to varying degrees) from books and supplies to aircraft rental for the purpose of maintaining currency or maintaining or improving your teaching skills. Knowing exactly what you can andcannot do is where an accountant's advice can be very valuable. You might check around the airport and try to find one who deals with aviation issues. The advice to maintain good books and records is dead on. Microsoft Money will do the job of recording the information, but you need to maintain the backup paperwork also.

John Tenney is correct. The line between "contractor" and "employee" can be very thin and states will, from time to time, target industries or businesses that they believe are on the "wrong side" (the Colorado labor department targets about one flight school every three years - so far the state has lost each time). But that affects the place where you are working more than you. The bottom line here is that, as an "independent contractor", you are now running a business. So long as that is the case, treat it as a business. You will be entitled to take reasonable business expenses as a deduction, but you will also be responsible for proper record-keeping. You may want to open a separate Money file to keep all business transactions completely separate from your personal ones. The advice to check out your local SBA office is a good one. They have lots of good information on home-based businesses.

Finally a word of warning. While there are definitely some benefits to creating a limited liability entity for the business, beware of the common wisdom that this will somehow protect you or your personal assets if there is an accident in which you are assigned blame. AFAIK, that is =not true= in any state of the US. If, for example, there were an accident during a training flight and fault were assigned to you, the corporate or other limited liability entity would =not= protect you or your house, car, etc. Most of the liability protection benefits don't kick in unless there is someone other than you in the business, and, even then, only insulates you personally for something the other =person= does.
 

Mr_Creepy

Well-Known Member
Re: CFI\'s - Do you pay your own taxes?

ditto what Midlife said. I formed a corporation for tax purposes, not for limiting liability. I'm not up on all the legal stuff like I should be, but I don't think a CFI can hide behind the "corporate veil."
 

stuckingfk

Well-Known Member
Re: CFI\'s - Do you pay your own taxes?

JT & MidlifeFlyer,

Have you two ever seen anyone start a business whose sole means of income is leasing aircraft to flight schools? Also, what do you think of a CFI (me in a few months) buying his/her own aircraft and instructing in it?

Thanks
 

MidlifeFlyer

Well-Known Member
Re: CFI\'s - Do you pay your own taxes?

[ QUOTE ]
Have you two ever seen anyone start a business whose sole means of income is leasing aircraft to flight schools? Also, what do you think of a CFI (me in a few months) buying his/her own aircraft and instructing in it?

[/ QUOTE ]Most of the people who I know who do leasebacks do it as a way of defraying some of the costs of ownership. There's a balance between the extra costs associated with a leaseback for flight training purposes (100 hour inspections, increased insurance premiums, more maintenance from heavier wear and tear) and the income that the airplane generates. I know a couple of folks who stopped doing leasebacks because, "I wasn't making any money and all I got was a tired airplane". I do know one fellow who has 10 aircraft on leaseback to flight schools in the area. The impression I get is that the best that it does is help pay for the 11th airplane - the one he flies personally.

On the "instruct in my own airplane" issue, I really don't know. I guess the question is, again, whether you can generate enough income to offset the extra costs. Like any other business venture, that's going to be a combination of how many hours there are in a day and the demand in your area. I know one person who tried it for a while, but, except for the fact that it just wasn't generating the income that he hoped, I don't really know the details.
 

Mr_Creepy

Well-Known Member
Re: CFI\'s - Do you pay your own taxes?

I would suggest resisting the urge to buy an airplane. You will lose your shirt on it most likely.

Figure it this way - suppose you borrow $50k to buy an airplane. Interest alone is going to approach 5k a year. You can rent a LOT of different airplanes for 5k.

We haven't even begun to talk about annuals, tie down, routine maintenance and the biggie - insurance!

Rental insurance for instruction is one of the highest premiums in aviation.
 

stuckingfk

Well-Known Member
Re: CFI\'s - Do you pay your own taxes?

[ QUOTE ]
I would suggest resisting the urge to buy an airplane. You will lose your shirt on it most likely.

Figure it this way - suppose you borrow $50k to buy an airplane. Interest alone is going to approach 5k a year. You can rent a LOT of different airplanes for 5k.

We haven't even begun to talk about annuals, tie down, routine maintenance and the biggie - insurance!

Rental insurance for instruction is one of the highest premiums in aviation.

[/ QUOTE ]

Hey thanks guys for the replies. But everything you said JT is tax deductable when set up as a business. This includes advertising, insurance, interest paid on loans, gas, hangar, etc. This is assuming you could make some money so you have stuff to deduct.
 

MidlifeFlyer

Well-Known Member
Re: CFI\'s - Do you pay your own taxes?

[ QUOTE ]
This is assuming you could make some money so you have stuff to deduct.

[/ QUOTE ]Ah! There's the catch!

On the other hand, if you have too much income, you might be able to get some interesting write-offs.
 

pilotjww

New Member
Re: CFI\'s - Do you pay your own taxes?

http://www.cehandbook.com/
http://www.pacepros.com/

Two links you might want to investigate as a Contract Employee (CE).

One is a handbook.
The other looks like what a Business Manager would do for you for 5% off the top.

No recommendation - just some interesting stuff to investigate as you form your ideas on starting your self as a contractor.
 

Mr_Creepy

Well-Known Member
Re: CFI\'s - Do you pay your own taxes?

You can deduct aircraft rentals if you have an aviation business. That ends THAT argument
 

Stone Cold

Well-Known Member
Re: CFI\'s - Do you pay your own taxes?

After reading my post, I realize that maybe I gave the wrong impression... I am fully aware that the only liability coverage (limited as it may be) is CFI insurance. I in no way intended to imply that an LLC could protect you in an accident. I was more talking about taxes and other business-related debts than an accident/incident in the airplane.

I thought briefly about the benefits of buying an airplane and, if you do the math on it, unless you have money to burn, it is a very rough prospect at best.
 

stuckingfk

Well-Known Member
Re: CFI\'s - Do you pay your own taxes?

[ QUOTE ]
You can deduct aircraft rentals if you have an aviation business. That ends THAT argument


[/ QUOTE ]

So JT, does it have to be a reasonable aircraft. Lets say I could easily do the trip in a 210, but would rather take a seneca or C 340? Does it matter then?
 

Mr_Creepy

Well-Known Member
Re: CFI\'s - Do you pay your own taxes?

Luc nobody says you have to make money.

Companies deduct G-IVs, why can't you deduct a C340?
 
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