LLC vs. S corp for Contract CFI

sr22driver

sr22driver

what had happened was...
I am venturing out once again into the shadowy world of Conract Pilot/ CFI.
I'm curious if any of yall have set yourselves up as a LLC or S corp. to avoid any possible liability/taxation issues.
If so has it been worthwhile or has it been more paperwork headaches than it's been worth.
 
Knowing what I know about LLC, I think you answered your question with your last sentence. It's only going to be worthwhile if your are extremely busy.
 
sr22driver said:
I am venturing out once again into the shadowy world of Conract Pilot/ CFI.
I'm curious if any of yall have set yourselves up as a LLC or S corp. to avoid any possible liability/taxation issues.
If so has it been worthwhile or has it been more paperwork headaches than it's been worth.
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UGH, don't even get me started on this...


If you want to talk about what I have learned, I will be back in the US in early May. PM me then and we'll chat on the phone, or have lunch if you're in the Jax area.
 
I doubt a LLC will offer you much in the way of liability protection (even if you perfectly preserve the corpaorate veil) because when you sign someone's logbook, you do it as an individual, not as a corp. If you're looking to offer an airplane for rent then there's value to a LLC, but as a contract pilot/CFI YOU are the one with the credentials, not the corp.

An S Corp passes income to the owners without taxation, and income is taxed at your personal rate, just as if you filed a Schedule C for other income.
 
Nihon_Ni said:
I doubt a LLC will offer you much in the way of liability protection (even if you perfectly preserve the corpaorate veil) because when you sign someone's logbook, you do it as an individual, not as a corp. If you're looking to offer an airplane for rent then there's value to a LLC, but as a contract pilot/CFI YOU are the one with the credentials, not the corp.

An S Corp passes income to the owners without taxation, and income is taxed at your personal rate, just as if you filed a Schedule C for other income.
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Some examples of "piercing the veil of an LLC". LLC giving you unlimited liability protection as an individual is one of the great myths.
http://www.llclawmonitor.com/articles/piercing-the-veil/
http://www.wrlawfirm.com/Articles/wrm.article.MaintainingLLCLiabilityProtection.html
http://www.abanet.org/rppt/publications/edirt/2002/2002-2/art-murray.pdf
 
Thanks fellas,
I was looking at the LLC more for tax purposes, keeping my expenses while flying separate from my my other endeavors. While useing the LLC as a buffer from lawsuit should anything happen while flying someone elses A/C.
Unfortunately it looks like I will be contacting my attorney and C.P.A. buddies, hopefully it wont hurt too much.
 
sr22driver said:
Thanks fellas,
I was looking at the LLC more for tax purposes, keeping my expenses while flying separate from my my other endeavors. While useing the LLC as a buffer from lawsuit should anything happen while flying someone elses A/C.
Unfortunately it looks like I will be contacting my attorney and C.P.A. buddies, hopefully it wont hurt too much.
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It will probably cause more tax headaches that just operating as a sole prop. The LLC only protects your assets against FINANCIAL liability, like defaulting on a loan. It will not protect you against negligence. Just buy insurance.
 
mojo6911 said:
It will probably cause more tax headaches that just operating as a sole prop. The LLC only protects your assets against FINANCIAL liability, like defaulting on a loan. It will not protect you against negligence. Just buy insurance.
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Look at some of the cases I cited- it won't even protect you from financial liability if your creditors can pierce the LLC veil.
 
mojo6911 said:
It will probably cause more tax headaches that just operating as a sole prop. The LLC only protects your assets against FINANCIAL liability, like defaulting on a loan. It will not protect you against negligence. Just buy insurance.
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Well, protection from financial liability is the point of most small corporate entities. Any large corporation you do business with is pretty much going to require you to carry CGL (general liability) of at least $1,000,000. (costs about $200/year). Another reason an S-Corp is desirable is that it lets you deduct far more in expenses than would be allowed as an individual. So any flying you do, insurance you pay, charts you buy - pretty much everything, is not counted as "income" for you, but as an expense for the company. Your tax bill can be substantially lower having an S-corp (there are far more limits on what you can deduct as expenses as an individual. And AMT doesn't apply to subchapter S corporations, it generally does for sole props) And BTW, it isn't much hassle. File Articles of Incorporation whatever state you want (Nevada, Deleware, and Florida typically are best), register your business with your secretary of state, and file a Subchapter S election with the IRS. Takes -maybe- four hours to do all of that.
 
drunkenbeagle said:
Another reason an S-Corp is desirable is that it lets you deduct far more in expenses than would be allowed as an individual. So any flying you do, insurance you pay, charts you buy - pretty much everything, is not counted as "income" for you, but as an expense for the company.
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That's deducted for me, too...as an individual contract pilot.

Parking, charts, training, meals, tips, cell phone, website/marketing materials, health insurance, yadda yadda.

You don't need an S Corp or LLC for that. If you're in the business of aviating and you have aviation related expenses that are necessary for you to make money, you deduct it.

-mini
 
minitour said:
You don't need an S Corp or LLC for that. If you're in the business of aviating and you have aviation related expenses that are necessary for you to make money, you deduct it.

-mini
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There are limits to that though. Eventually as an individual, the IRS will not allow all of your expenses. The AMT will kick in, this was the reason I had an S-corp when I was freelance (I learned that the hard way).
 
drunkenbeagle said:
There are limits to that though. Eventually as an individual, the IRS will not allow all of your expenses. The AMT will kick in, this was the reason I had an S-corp when I was freelance (I learned that the hard way).
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Of course they won't allow all of your expenses. How ridiculous would that be?

But any expenses related to the business of being a pilot/instructor, I deduct. I'm obviously not trying to deduct tolls for driving to a golf tournament or ballgame.

-mini
 
minitour said:
Of course they won't allow all of your expenses. How ridiculous would that be?
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I think you are missing the point. If you had $150,000 in revenue, and $120,000 in expenses, how much should you pay in taxes?

I would say you made $30,000 and should pay taxes on that. The IRS will say that you made $150,000, and owe $36,000 or so in Federal AMT tax anyway. Fair? No.

You don't like it? Become an S-Corp or LLC. And BTW, they don't have to be flying expenses only. Your business can spend money on pretty much whatever it wants. Client entertainment? Taking students to dinner? All valid business expenses. As an S-Corp, you can also pay yourself "distributions" of the profits, which are taxed far lower than ordinary income.
 
drunkenbeagle said:
I think you are missing the point. If you had $150,000 in revenue, and $120,000 in expenses, how much should you pay in taxes?

I would say you made $30,000 and should pay taxes on that. The IRS will say that you made $150,000, and owe $36,000 or so in Federal AMT tax anyway. Fair? No.

You don't like it? Become an S-Corp or LLC. And BTW, they don't have to be flying expenses only. Your business can spend money on pretty much whatever it wants. Client entertainment? Taking students to dinner? All valid business expenses. As an S-Corp, you can also pay yourself "distributions" of the profits, which are taxed far lower than ordinary income.
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Just offhand (I'm no expert) but afaik S corps and LLCs are "pass-through" tax entities and the income is taxed at the shareholder level, so does that avoid the individual AMT? It sounds more like a C-corp or a "C" election for an LLC would be the way to do that, assuming it makes any difference (heck, I thought that basic Schedule C net was computed before we got to AMT issue).

Any accountants?
 
MidlifeFlyer said:
It sounds more like a C-corp or a "C" election for an LLC would be the way to do that, assuming it makes any difference (heck, I thought that basic Schedule C net was computed before we got to AMT issue).

Any accountants?
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The problem with schedule C "net" is that the income all needs to be 1099 from that source. Becomes a big problem if too much income is W-2. When I was freelance, I always had more W-2 income than I wanted (and ended up being unable to deduct all of my expenses)

With an S-corp, you almost total control in what you pay yourself W-2, 1099 and in dividends. For most people, I think the S-corp is a better structure, but I'm not a tax lawyer.
 
minitour said:
Didn't have to do that. Paid taxes on my "net" income this year, not the gross.

One of us has been given bad information.

-mini
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It only becomes an issue if you have a lot of W2 income, and are subject to AMT. (If you make less than $100,000, it won't matter as much). I had some customers that insisted on paying my fees W2.
 
I need to do this as well, but I'm just as confused as the next pilot. So, can anyone recommend an accountant or lawyer in FL?
 
I'm in need of starting one of these. Haven't decided which for tax reasons. What is the difficulity level of filing the Articles on Incorporation and other documents? Is it worth paying legalzoom the extra $100 bucks?
 
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