If you have an airplane at your business then the IRS has issued a ruling that you may be interested in. The ruling covers the deduction of expenses for business aircraft used for entertainment. This clarifies the 2004 law that limited deductions for executives who used their company jets for entertaining over the business's cost. The final ruling follows the proposed ruling REG-147171-05 that came out in 2007.
The ruling now defines what is covered as “travel aboard a taxpayer-provided aircraft for entertainment purposes.” This does not cover travel about the aircraft for business purposes, attending charity events, or medical reasons.
Costs that can no longer be deducted are depreciation, hanger costs, pilots wages, and anything else not tied to a particular event. The direct costs of the flight are also not allowed. These are the fuel, landing fees, temporary storage, or travel costs for the pilots and flight crew.
The ruling defines two methods for allocating the costs to a flight. The first is a flight-by-flight method. To use this take the total costs for the year and then divide by the flight miles or flight hours for any individual flight. The costs can then be divided by the passengers. The second option is to use an occupied seat method. Multiply the seats filled by the flight hours and then divide in the total costs for the year.
Those covered by the ruling are officers and executives of the company. That is defined as managing partners, members of the partnership, of those with over 10% ownership or equity of the company.
If you need a business account to help you navigate the rulings and how they apply to your company then Accounting Aisle can connect with experts near you.