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Claiming tax back on flight training


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I have been reading everyones comments on everything with interest for a while and this forum is truly a great resource.

I am still a wannabe as far as heli training goes as I am trying to save as much money as I can in my current job and maybe trying to do my PPL during time off from work before moving to the US (I'm in England as name suggests!) and getting a loan to get the rest of my ratings.

I only have up to 5 weeks a year paid vacation, after time out for Christmas, (not as much as buckwheat), but if I took it all off in one go, studied all the ground really hard in advance could I feasibly complete PPL and checkride in 30 days? I guess it's hard to say, I'll probably need a few vacations!

 

OK, next question.

In the UK, some heli students set themselves up as self employed as an FI (CFI) before having their certificates, and then claim the tax back on their training as a required business expense, and then when they get all their licenses work for a flight school as a self employed contractor and charge tax on their services (to legitimise their self employed claim), which the flight school can reclaim as a business expense, so they're not out of pocket.

I was wondering if there is any such provision in the US for tax "work arounds" like that as anything to make training cheaper is good in my book. I'm not an accountant (I'm an engineer!) and certainly have no idea how the US IRS system works other than like all tax collectors they will probably rape you for everything and only give it back if you ask for it and without the interest they would charge you if you defaulted!

In the UK our VAT (read Sales Tax) is 17.5% so it's well worth doing if you can.

 

Oh, and I know all about the visa and TSA requirements for foreigners, but I have the glorious honour of having married one of your countrywomen (just 2 weeks ago, in fact!) so that is on its way to being smoothed out somewhat. She is incredibly supportive of my wants and needs to become a helicopter pilot, which I appreciate is very important in the long term.

 

Thank you for any help or advice anyone can offer (if you understand what I'm on about and if you managed to read to the end of this looong post!)

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You know, I started training last month and since it's also tax season I've been thinking a lot about this. I haven't heard of people doing what you're saying here in the US but tax-wise it should work the same and it sounds like a good idea if a school is willing to hire you that way. You can deduct costs associated with training/education for work, so I would imagine (CPAs feel free to correct me if you know better) that if you are already a commercial pilot and getting an add-on you could deduct that expense; CFI and ATP maybe, or fixed or rotorwing ratings if you already work in the opposite field. However, I haven't yet figured out how to claim the expense of initial training. Rumors abound that it's possible, but if anyone has succeeded and wants to share the wealth, I'm sure more than just I would be grateful! Feel free to PM if the IRS scares you. :lol: Not that they can't find you ANYWHERE.... B)

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Actually, to correct myself... you have be specific in that you don'tsay you are set up in business as a CFI but instead say you offer "aviation services" which includes any ground work as well, so driving the fuel truck or even washing a helicopter / sweeping a hangar, if you can invoice someone for it and include tax on the cost, it substantiates the claim that you are in fact a self employed "aviation services" person, looking to expand into flight training. The buy-in of the flight school is essential to make it work, obviously.

 

Of course the IRS scares me, they have more power than the police! :unsure:

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I been thru this, and the answer my accountant had for it, was nope. Getting certificates and ratings are not really deductable. Now if you are a working Commercial Pilot and you employer requires you to get a Instrument rating in order to continue to work, then some of that expense may be deductable. Renewing a Flight Instructor Certificate or adding a rating to that certificate would be deductable. Provided you can show an Income from instructing and when you add up all your Item deductions its is equal to or greater than the standard allowances. I did the whole route, keeping track of every thing a when it came down to it, in my case It took more time and expense that what I was able to really save on taxes.

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EnglishBob,

 

I think the biggest factor here is that you have to make money in order to write off expenses. Basically if your "aviation related" business doesn't make any money, then you don't have to pay taxes on that money, so if you don't have to pay taxes on that business, there is nothing to write off so to speak. For example, if you sweep hangars for a business, and make $2000 in a year, then you can write off the expenses up to $2000. I don't know how much money you make in your other job or career, but I doubt that the couple thousand you might save by trying to write off flight instruction would be worth the headache of getting audited and trying to justify to the IRS that flight instruction was a necessary cost of your aviation business. The problem with writing stuff off, is I think people have the impression that they can write off a huge amount, and the government is just going to send them a check for that... The only way a write-off is any good is if you make money doing the same thing. Other than that, you are just risking an audit as well as fines from the IRS if they catch you. I am not saying this can't be done or hasn't been done, I just wonder how much you are saving, vs how much you are risking.

 

At the end of the day, you can write off whatever you want to, you fill out the papers, and mail them in... that only leaves a few questions that you have to answer: 1. Will you be audited? 2. will you be able to reasonably justify the write-off? 3. will the IRS agree with you?

 

Dave

Edited by DebosDave
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Thanks for the replies. I suspected this would be the case. What I have heard about doing it in the UK is that it can depend very much on the Revenue and Customs (IRS in the UK) officer in your area that you talk to. If you explain what you want to do, and why, and if they are interested in helicopters and flying then you'll be OK! They will allow your 'business' to make a loss if you submit a business plan showing that you plan to make a profit and that is all they need. It seems ridiculous and open to abuse when I think about it (who plans to make a loss!?) no wonder we are being taxed to death in this country and just about every young person (<30) I know wants to leave!

 

Seeing as flight training is half the price in the US anyway (or twice the price in the UK depending on your perspective) it was just me getting greedy!

 

Incidentally, I know the US penchant for showing prices without tax and then hitting me up for it at the counter (I never got used to that!) Do quoted hourly rates for helicopter training include tax? or do I have to add 10%ish (not sure what US taxes are) to get the true cost?

 

I look forward to joining you all and flying as soon as I am able to afford it.

 

Thanks

 

EnglishBob

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I know I was able to save on taxes because I was furthering my education. I just showed my reciepts from the flight schools. Anytime you do this in the US you should be able to get some sort of tax break. If you take out a loan then you definately can write off the interest that you pay each year.

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... If you take out a loan then you definately can write off the interest that you pay each year.

 

Writing off interest on a loan would be nice!

 

Is "furthering your education" something that anyone can claim to be doing? I mean we are obviously looking to learn something new so the claim is honest, but will it garner a tax break in all cases?

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I know I write off the interest on my undergraduate loan every year, but I wasn't aware that my flight training loan was a "qualified loan". Maybe it depends on where you borrow from? I'm privately financed, but are SM and Loan-to-Learn (haven't heard TOO much about them but they're around) maybe qualified?? Hm. I would hope ANY loan for ANY professional training (be it academic or technical or anything you need a license to teach) would be considered qualifying, at least to write off the interest. Licensed professionals taught me my undergrad, no different for training to be a commercial pilot except the government writes the rules! You'd think that would count for something, eh?? I like this thread but are any of us tax accountants? Maybe we should invite some CPAs who like helis to join... :blink:

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I know I write off the interest on my undergraduate loan every year, but I wasn't aware that my flight training loan was a "qualified loan". Maybe it depends on where you borrow from? I'm privately financed, but are SM and Loan-to-Learn (haven't heard TOO much about them but they're around) maybe qualified?? Hm. I would hope ANY loan for ANY professional training (be it academic or technical or anything you need a license to teach) would be considered qualifying, at least to write off the interest. Licensed professionals taught me my undergrad, no different for training to be a commercial pilot except the government writes the rules! You'd think that would count for something, eh?? I like this thread but are any of us tax accountants? Maybe we should invite some CPAs who like helis to join... :blink:

 

From the IRS Publication 970:

 

Student Loan Interest Deduction at a Glance

 

Maximum benefit - You can reduce your income subject to tax by up to $2,500.

 

Loan qualifications - Your student loan must have been taken out solely to pay qualified education expenses, and cannot be from a related person or made under a qualified employer plan.

 

Student qualifications - The student must be you, your spouse, or your dependent, and enrolled at least half-time in a certificate or degree program.

 

For purposes of the student loan interest deduction, [qualified education] expenses are the total costs of attending an eligible educational institution...

 

An eligible educational institution is 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 (privately owned profit-making) postsecondary institutions.

 

So, while flight school could be a "vocational school" and the ratings might be considered "certificates", it would appear that unless the school is at least a Part 141 school it would not be "eligible to participate in a student aid program administered by the Department of Education" and therefore the interest on a loan to attend is not deductible.

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From the IRS Publication 970:

An eligible educational institution is 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 (privately owned profit-making) postsecondary institutions.

What about the Lifetime Learning Credit? It seems like flight training expenses would qualify if you were training full-time, but I'm not sure how to interpret the "eligible to participate in a student aid program administered by the Department of Education" requirement. What does that mean?

Is that why some flight schools are now teaming up with colleges (like USVI) to tie the flight traing to an college study program?

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What about the Lifetime Learning Credit? It seems like flight training expenses would qualify if you were training full-time, but I'm not sure how to interpret the "eligible to participate in a student aid program administered by the Department of Education" requirement. What does that mean?

Is that why some flight schools are now teaming up with colleges (like USVI) to tie the flight traing to an college study program?

 

Same requirement as the interest deduction...apparently the federal government has determined that a college education is of greater value to society than is a CFI ticket (or maybe the colleges just have more lobbyists than the flight schools).

 

Anyway, if the school doesn't qualify for Stafford or PLUS loans...and probably none do which is why they're not offered (although I'm not sure about 141 schools)...then the interest deduction and LL Credit aren't available for flight training. The "student loans" offered by flight schools...even those through Sallie Mae...are not part of the federal student aid program. Those loans are just unsecured private bank loans...just like a credit card (and with only a slightly better rate).

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I am not sure but it looks like this fixed wing school has figured out a way to do exactly what Bob was talking about above. Creating a buisiness and using tax write offs etc...

 

http://aviationtrainingunlimited.com/associateprogram.html

 

I am still researching the flight training loan interest deductions, although it shouldn't be any different from someone attending a privately owned technical school for things like mechanics, or cosmetology. I will let you know what I find.

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I am not sure but it looks like this fixed wing school has figured out a way to do exactly what Bob was talking about above. Creating a buisiness and using tax write offs etc...

 

http://aviationtrainingunlimited.com/associateprogram.html

 

I am still researching the flight training loan interest deductions, although it shouldn't be any different from someone attending a privately owned technical school for things like mechanics, or cosmetology. I will let you know what I find.

 

Actually, there's nothing new in what this school is offering. The pitch is basically a combination of you-can-provide-flight-instruction-as-an-independent-contractor ("and keep every penny!") and, a sort of multi-level marketing ("You will earn a percentage of revenues depending upon your level of involvement").

 

Here's a look at what they are claiming:

 

"As in the case of a contract flight instructor you, too, would be operating an independent business of your own. Your business would consist of promoting, developing, selling, and conducting pilot education and flight training services. ATU would contract with you and pay you directly for a variety of school-related jobs. As an independent contractor your business and operating costs would represent a tax-deductible expense.*"

 

Generally, any CFI can recruit customers, offer flight instruction and operate as a stand-alone business...he pretty much just needs an aircraft. So what do these guys offer then? The hook is the part about them contracting with you as an independent contractor and paying you directly for "a variety of school-related jobs" (whatever that means). They make it sound like they will find the jobs and you will just fly and instruct. Every school tries this "independent contractor" line when they start up. And why? So that they only have to pay labor costs (you the pilot) when you are generating revenue and because they think they can avoid paying PAYROLL TAX. They can save 7.65% in payroll tax, the employers half, if you are an independent contractor because YOU will have to pay it. They also may think they can avoid Workman's Comp insurance because you are not an employee but most state's have clamped down on this and have even shut down some schools that were not providing coverage.

 

You may or may not meet the IRS requirements for being an independent contractor...it depends on how much control the school has in setting your schedule...but, why would you want to? At what most CFIs make they do not pay much if any income taxes anyway. The big tax hit is for payroll tax. An independent contractor CFI will pay both the employee half and the employer half of Social Security and Medical taxes...totally 15.3% of income. As an employee he would pay only the employee 7.65%. What will happen is you will go along all year earning your hourly rate and not paying any withholding. Then at tax time you will get a surprise because there is a $4,590 tax bill on your 1040 for that $30k in income you already spent.

 

How about this claim:

 

"Working in this manner you can earn substantial income and also be in a position to write off approximately half of your flight training costs."

 

I love their qualifiers...you'll be in "a position" to write of training costs. Under the IRS rules you can deduct training costs AFTER you are qualified for the occupation you are engaging in. So the earliest you can deduct anything is after you get your CPL. But the majority of training costs are incurred getting to the CPL. You could technically deduct your CFI training costs from your aviation related income...but, until you get your CFI you probably aren't making any aviation related income. Or you could wait until you are instructing to pursue your CFII and IFR ratings and you can probably deduct the training costs of those but, can you get an instructing job without those ratings? Basically, you will find out what most pilots learn...that there are very few opportunities for legal tax deductions for flight training.

 

Finally, you're right about flight school not differing from other vocational schools. And for the purpose of deducting training loan interest or getting the Lifetime Learning credit those schools are subject to the same requirement that their institution must "be eligible to participate in a student aid program administered by the Department of Education". And some large vocational schools do qualify...but flight schools generally do not.

 

Hope that helps.

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I did a bit more digging and the following are considered to be "student aid programs administered by the Department of Education" according to the FAFSA web site:

 

Federal Pell Grants

Academic Competitiveness Grants

National Science and Mathematics Access to Retain Talent Grants

Federal Stafford Loans

Federal PLUS Loans

Campus-Based Programs

Federal Supplemental Educational Opportunity Grants

Federal-Work Study

Perkins Loans

 

I don't know of any helicopter flight schools that are eligible for these types of financial aid. If anybody has information to the contrary, I'd like to know. Otherwise.... Fry is probably right again.... I hate that! :P

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fry if you're not a CPA, (and even if you are) it was a very well researched reply and I thank you for the obvious effort you have gone to.

 

As much stick as you get for being a pessimist, and usually with regard to the finance side of things, I really feel that the way you put some things into perspective gives a useful twist to the forum.

 

A voice of caution and reason is just as important as someone saying "Go for it!" and hang the consequences. I suspect everybody that participates in this forum is either flying, learning to fly or wanting to fly, and all have the enthusiasm and rose tinted glasses that come with pursuing what you want. Nobody wants to like anyone that says that what you believe is a dream could be a nightmare if you're not careful, prepared or realistic but no one can or should deny that reality can be very different and is a very important thing to keep in mind.

I believe fry is an asset to the forum, so thanks for that.

 

fry, you did mention that you weren't sure about Part 141 schools, I assume then that you're experience is mainly with part 61, are you then a school owner or student?

 

I would have thought that industry leaders like HAI / soon to be Bristow Academy, would have looked at getting the sort of accreditation necessary to help their students out as much as possible and if they don't, have good reasons for it. Obviously asking them would be the easiest way to get the information.

 

Thanks for all the comments.

EnglishBob

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On a slightly different topic (possible new thread) and just about to go on holiday (so not enough time to go into detail) I want to pose a question to J1 visa holders working in the US.

 

When I was there, I figured that actually the Social Security and Medicare Taxes (which were withheld) actually should not have been.

 

The simple arguement is this:

 

As I am on a 'temporary visitor visa' then presumably I shouldn't be required to pay for Social Security, as I would not be taking advantage of that under the visa agreement.

 

Also, seeing as 'medical insurance' is a pre-requisite for the J1 visa, then I wouldn't be using any of the State medicare benefits.

 

I looked into this in some detail at the end of my stay, and am convinced that those monies are due back to me from the IRS. I have a ton of references and collected much backup evidence to support that.

 

Well, I am still in persuit of those refunds. Unfortantely, due to now living abroad, moving house a couple of times, things have been slow and difficult. Some years later, and I still am in dialogue with the IRS!

 

Its something worth thinking about, as it is worth about USD 3000 to me (and others).

 

Just wondering what any other J1 visa holder thinks!

 

Joker

Edited by joker
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