Write Off Flight School Expenses??

Tuckster said:
I had a tax expert explain to me that it could be deducted as an educational expense ???????
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Some of it, if you're already a working pilot.

I talked to a family-relation CPA last night about this. He's not current on tax code, so he was iffy on it but he said a couple things that were interesting...

1) If you believe, logically, that the business-expense deduction (in my case) is legit, go ahead and write it down, date it and hang on to it. Then take the deduction.
2) Chances are they wouldn't audit me, but if they did, I'd have the reasoning written and contemporaneous (his word) which I could provide to the auditor.
3) If it turns out I'm wrong, be prepared to pay the interest and penalty.

I thanked him for the advice, and asked him if he knew a working tax pro that I could go talk to about it. He pointed out that it would probably cost me more to find out than it would save me in deductions. And he had a point - I started my flight training in October of '07 and there wasn't a whole lot spent - maybe a little over $1000, which would have barely hit my 2% AGI.

So I'm not going to mess with it for '07 taxes. '08 might be a different story.
 
If you have not joined AOPA, you should #1. If you have not read the link at the AOPA site I posted, you should #2. It is very clear on what you can and cannot do, and provides examples of what has happened in Tax courts over the years as a result.

It is certainly possible to claim anything on your tax return and never be questioned on it. The time the IRS does audit you though, you better have an explanation at the very least. Decide whether the savings is worth the risk of heavy penalties, and I would guess even a possible jail term if fraudulence is proven?
 
One Example:

Roussel v. Commissioner of Internal Revenue, T.C. Memo 1979-125.
Roussel, a flight engineer, taught ground school safety to pilots at Flight Safety International. Roussel received very favorable critiques of his course except for the recurring complaint that he did not teach his subject from a pilot's perspective. After Flight Safety threatened to fire Roussel because of these complaints, he began to take flying lessons. Roussel eventually received his commercial pilot certificate, and the negative criticism about his teaching stopped. On his 1974 tax return, Roussel deducted $6,309 for the costs of his flying lessons. The IRS denied the deductions on the basis that the educational expenses qualified him for a new trade as a commercial pilot.
After reviewing the case, the Tax Court agreed with the IRS. The court acknowledged Roussel's argument that the flying lessons improved his teaching skills. The court, however, found that the commercial pilot certificate enabled him to earn compensation in a trade for which he was previously unqualified and, therefore, the costs of the training were not deductible. This was despite the fact that the court recognized that Roussel was an unlikely candidate for a career as a pilot, since he had few flying hours and did not hold an ATP certificate or an instrument rating.
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Well.....
What if the training is through a community college, AND is part of a curriculum?...
In other words, you NEED the PPL/IPL/MEL etc in order to meet credit requirements to graduate??!!!
... In THAT CASE I would claim it..
Any opinions?
 
Rodelu said:
Well.....
What if the training is through a community college, AND is part of a curriculum?...
In other words, you NEED the PPL/IPL/MEL etc in order to meet credit requirements to graduate??!!!
... In THAT CASE I would claim it..
Any opinions?
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In that case, it will satisfy the requirements of the Lifetime Learning Credit as Kevin stated abouve:

The publication defines Eligible Educational Institutions as :

...any college, university, vocational school or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. It includes virtually all accredited public, nonprofit, and proprietary postsecondary institutions. The educational institution should be able to tell you if it is an eligible educational institution.

If you're enrolled in a degree program at a college, then you're eligible to participate in a student aid program (even if you cannot qualify for the program).
 
I still dont have a clear answer??? So if i spent 10k on my ppl last year can i claim it as an education expense, at a local fbo part 141. anybody?
 
mcdavi02 said:
You could go set up and file a DBA (doing business as) at the county clerks office, then open a business checking account, have some business cards made up that say Loadmaster's flight services, and viola, you are in the business. Obtain a ledger book and record all expenses, including your flight training costs. You are only required by the IRS to show that you have a reasonable plan to show a profit in the future, but you may operate at a loss for at least the first few years. You will file a schedule C with your return. Any competent accountant could guide you through the steps, but it's not necessary.
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As an X-CPA, I'll say good luck with that. It won't fly if you get an audit by the IRS.
 
belizepilot said:
I still dont have a clear answer??? So if i spent 10k on my ppl last year can i claim it as an education expense, at a local fbo part 141. anybody?
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No. You can not. You can only take education expenses at schools who receive Federal Funding. In almost every case, these are schools that offer degreed programs such as an Asscoiates or greater. So those folks at Embry Riddle, Sinclair Community College, University of Oklahoma, etc. can take this deduction. If you are only pursuing you ratings at an FBO, you can not take this deduction. Yeah, it sucks. But then I did not write the rules.
 
If you have to pay to get checked out in another airplane, does that qualify as a deductible expense? What about books, magazine subscriptions, etc...? Are those items deductible as a CFI?
 
Wing_96 said:
If you have to pay to get checked out in another airplane, does that qualify as a deductible expense? What about books, magazine subscriptions, etc...? Are those items deductible as a CFI?
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If you are a contractor, I would say yes. As an employee, it gets a little less clear.
 
mojo6911 said:
If you are a contractor, I would say yes. As an employee, it gets a little less clear.
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The general rule of thumb is that if you're an employee and your employer has a job requirement that involves you paying out of pocket for something directly related to the job, yes, it's deductible.

The key to all of this, though, is that your business expense deductions as an employee must exceed 2% of your AGI (adjusted gross income.) Also - you don't necessarily get the full amount deducted off your taxes. If you have to spend $5,000, you aren't getting a full $5,000 deduction - you're allowed a percentage by the IRS.
 
LoadMasterC141 said:
From past reading here, I am not sure what I can claim out of the $20k I spent on flight training this year.

The only thread I could find in a search is conflicting at best.
http://forums.jetcareers.com/general-topics/36430-irs-flight-training-and-taxes.html

My boss at work is confident one can deduct anything spent on training for a future career. Does not sound right to me, but I thought I would ask around.
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The general rule is:
You may be able to deduct work-related educational expenses paid during the year as an itemized deduction on Form 1040, Schedule A (PDF). To be deductible, your expenses must be for education that (1) maintains or improves your job skills or (2) is required by your employer or by law to keep your salary, status or job. However, even if the education meets either of these tests, the education cannot be part of a program that will qualify you for a new trade or business, or is needed to meet the minimal educational requirements of your trade or business.

For example, my son's flight training is not deductible. Not for me either, since flight school qualifies us for a new trade or business. However, if you are a prop pilot, and you get certified to fly jets for your employer, take the deduction under (1) above. I was a CPA for 13 years. The general key is whether its "personal", or "business". Generally personal expenses are not deductible but there may be exceptions, special credits, etc. By the way, Turbotax is a lot cheaper and better than most tax professionals.
 
It was only in an extremely unique situation that I was able to write off some flight training. Subsequently, I was audited for that tax year. While ultimately, the IRS agreed that this was ok, and I had all my ducks in a row, and I had a great CPA, let me tell you, an audit is no picnic. As it's been said before, for us underlings, the IRS is to be feared.
 
Minnesota_Flyer said:
There basically are two possible ways to deduct training costs as an individual:

1) Educational deductions/credits (i.e., Hope credit, lifetime learning, student loan interest deduction etc.). These are generally "above-the-line" deductions, but are subject to a number of conditions, such as limitations on the types of institutions which qualify. I do not know whether flight training expenses at a university or at a Pt. 141 school would qualify. I would guess that training expenses at a Pt. 61 school would not, although I don't know. All you ever hoped to know about tax benefits for education can be found here: http://www.irs.gov/pub/irs-pdf/p970.pdf

2) As an unreimbursed business expense. These are "below-the-line", meaning that you can only take them if you itemize deductions and to the extent that the costs exceed 2% of your income. These deductions are available if you are incurring expenses for eduction which is necessary to maintain or advance your current career. You may not deduct expenses incurred to become qualified for a new career. So, PPL, IR and CPL and initial CFI training would not generally be deductible because it is training to qualify for a new career. Once you are working as a pilot or flight instructor, however, training for additional rating in that career should be deductible. Best example is the cost to a working CFI of getting a CFI-I or MEI add-on should be deductible as an unreimbursed business expense.

(NOTE: If you have some other business in which being able to fly would enhance your efficiency (i.e., traveling saleman, managing a network of C-stores), it is possible that you could justify the PPL and IR as a legitimate business expense. As always, your mileage may vary; consult with your own tax professional for guidance; do not try this at home; do not taunt HappyFunBall.)

MF
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Lifetime learning tax credit got me a good chunk of change back on my taxes from last year. Glad I looked into it. Currently in training at 141 school which is non-collegiate .
 
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