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an employee who uses an aircraft for the employer’s business. On the other hand, the tax code treats business owners very favorably. Generous tax deductions are available when a business aircraft is utilized in a profitable business. Therefore, if an independent contractor or consulting arrangement can be negotiated with the buyer and the new company, it can facilitate the continued deductibility of a business aircraft.
Deal Structure – Earnouts
“ ... the tax code treats
business owners very
favorably.”
To further the independent contractor discussion, the founder of the company can negotiate to stay on to provide management or consulting services. A portion of the sales price of the business can be categorized as earnouts, payable as consulting fees, providing revenue that can be used to justify the operation of a business aircraft.
Final Thoughts
While a business aircraft may be an afterthought to a multimillion-dollar business acquisition, thoughtful planning at the transaction stage can allow a business owner to continue to enjoy significant income tax benefits from use of a business aircraft after the sale of the business. KA
Daniel Cheung, CPA is the principal of Aviation Tax Consultants. He is based at ATC’s Scottsdale, Arizona office.
KJ McCarter, CPA is an advisor at Aviation Tax Consultants. He is based at ATC’s headquarters in Columbus, Indiana.
ATC assists aircraft purchasers in acquiring aircraft in a tax efficient manner. Its services include the elimination or reduction of sales and use tax, maximizing income tax savings, controlling the cost of personal use of the aircraft, and complying with Federal Aviation Regulations. Cooperation with client’s tax and legal advisors is welcome and encouraged.
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KING AIR MAGAZINE • 15