BeechTalk - BT - Aircraft inventory levels are critically low.

Username Protected · **Posted:** 21 May 2025, 18:07

Username Protected wrote:

What if I pay cash because I have a windfall and want a deduction? I just won $1M in the lottery and I’d like to have a $1M deduction from an investment in a good project that has $1M in capital costs.

The only reason I can’t get the deduction is tax laws that promote borrowing.

No, you can't deduct business expenses from lottery winnings period. Well, you can deduct them but it won't go well for you and your account if you are audited.

Username Protected · **Posted:** 21 May 2025, 18:57

Username Protected wrote:

But, he can take his $1M and invest it in the business...

The best thing about this string of this current thread is I now understand why my CPA doesn't get it.

Are you sure your CPA is the only one who doesn't get it? FYI, he can't take the $1M and invest it in his business. He can only take what's left after paying taxes and invest it in his business.

Username Protected · **Posted:** 21 May 2025, 19:17

Username Protected wrote:

But, he can take his $1M and invest it in the business...

The best thing about this string of this current thread is I now understand why my CPA doesn't get it.

Are you sure your CPA is the only one who doesn't get it? FYI, he can't take the $1M and invest it in his business. He can only take what's left after paying taxes and invest it in his business.

Username Protected · **Posted:** 21 May 2025, 19:21

I started Vault Aircraft Records last year. I’m currently about $250k in the hole, you can bet that loss is offsetting income tax!

I think one of the issues with wealth creation is that many people do not understand how to take advantage of tax laws and minimize their exposure.

Username Protected · **Posted:** 21 May 2025, 20:44

Mike C's position is not without support: https://taxfoundation.org/blog/us-tax-i ... investment.

As the authors succinctly state, "Even if it were realistic to perfectly calculate and apply economic depreciation, such a system would still understate business costs, overstate business income, and bias the tax code against capital investment compared to full expensing. Any delay in taking deductions ignores the time value of money, distorts the cost of capital, and reduces economic output."

Username Protected · **Posted:** 21 May 2025, 22:25

Username Protected wrote:

You just said it…the CEO uses financing because it aligns with tax laws.

Depreciation is DESIGNED to encourage loans. It basically forces it because you have to pay taxes on money you don't have.

Mike C.

Username Protected · **Posted:** 21 May 2025, 22:33

Username Protected wrote:

the rest is just nonsense because you have your own idea of what profits are

My definition of profit is money in minus money out.

I think you will find that is a very common and general definition used by many.

Quote:

There is no phantom income being taxed.

Really?

How does someone spend $1M for a rig, take in $500K, lose $500K in that year, and make a "profit"?

That's bogus.

You are taxing the taxpayer on the basis of the unrealize value of equipment they still hold, but they can't "pay" their taxes with that.

Quote:

You only pay tax on the gains when you sell.

Not in the rig example. You paid taxes the first year on the basis that machine was still worth $900K. You ARE being taxed on its "value" despite that not being actual money.

Quote:

FYI, a CFO of a profitable company wouldn't be using more expensive equity to buy the drill. In the real world it is leased or financed with low cost secured debt and the cash flows are more closely aligned with the depreciation, real and tax.

In other words, bankers make more from this scheme and the business has the additional expense of loan interest.

Depreciation is setup to favor banks. Where else are you going to get the money to pay for your taxes on profits you don't have?

Mike C.

Username Protected · **Posted:** 21 May 2025, 22:45

Username Protected wrote:

No what I am saying is the concept of depreciation exists because governments want to limit people's ability to game the system

If you are taxed strictly on dollars in and dollars out, there is no "gaming" the system.

If you get a $1M windfall, and buy a $1M business asset, you have zero profit because you netted zero dollars in your pocket. But someday you sell that equipment and then taxes are due. You can't escape it. Meanwhile, the equipment makes you money in following years and you pay taxes on that profit. But you got a fair expensing of the asset, in today dollars, not one that is devalued in the future.

Mike C.

Username Protected · **Posted:** 22 May 2025, 06:38

Some business airplane owners plan to make significantly more money next year, every year. Bonus depreciation makes a huge difference for them. Many of them are using a pass-through taxation election (S-corp) and do not pay corporate tax rates, so depreciation this year is effectively saving them up to 35%+ on state and federal income taxes. If they finance the purchase, they get to keep even more of their cash and invest it this year and write off the interest expense, so there are still incentives to borrow.

For a Fortune 500 company running a fleet of business jets, with carefully forecasted and projected growth of 4-5% per year over the next 5 years, paying a 22% corporate income tax rate, it may not make much difference at all. In fact, they care how their balance sheet reads, and have some incentives not to depreciate it all at once.

Why don't we have immediate expensing, and instead use depreciation? I don't know, above my pay grade, but I've noticed many laws seem to end up favoring big business over smaller competitors. Almost like they wrote the laws.

Username Protected · **Posted:** 22 May 2025, 06:40

Username Protected wrote:

If you are taxed strictly on dollars in and dollars out, there is no "gaming" the system.

How about this gaming from the Australian government, taxing unrealised capital gains, got the idea from Kamala.

‘ It was one of Kamala Harris’ most controversial policies that even one of her most ardent supporters called an “economy killer” — but Tuesday’s budget reveals Labor is full steam ahead on taxing unrealised capital gains.’

https://www.news.com.au/finance/economy ... 6af7ac4a64

Andrew

Username Protected · **Posted:** 22 May 2025, 07:05

Username Protected wrote:

But, he can take his $1M and invest it in the business...

The best thing about this string of this current thread is I now understand why my CPA doesn't get it.

Are you sure your CPA is the only one who doesn't get it? FYI, he can't take the $1M and invest it in his business. He can only take what's left after paying taxes and invest it in his business.

Username Protected · **Posted:** 22 May 2025, 10:58

Username Protected wrote:

No what I am saying is the concept of depreciation exists because governments want to limit people's ability to game the system

If you are taxed strictly on dollars in and dollars out, there is no "gaming" the system.

If you get a $1M windfall, and buy a $1M business asset, you have zero profit because you netted zero dollars in your pocket. But someday you sell that equipment and then taxes are due. You can't escape it. Meanwhile, the equipment makes you money in following years and you pay taxes on that profit. But you got a fair expensing of the asset, in today dollars, not one that is devalued in the future.

Mike C.

Username Protected · **Posted:** 22 May 2025, 11:31

Username Protected wrote:

You say these laws exist for a “good reason” - I’m interested to hear the good reason why we have different types of income, taxed at different rates, with some deductions allowed to offset some kinds of income but not others. I mean a good reason other than favoritism to special interest groups who can afford lobbyists.

There are a number of reasons, but they mostly come down to influencing behavior. I would personally prefer a much more simplified tax system, but that would limit the government's influence and control over the economy. We can argue whether that is a good thing or bad, but the government folks want power.

Username Protected · **Posted:** 23 May 2025, 09:38

Username Protected wrote:

Depreciation of long-lived assets, independent of IRS treatment, is actually more the matching principle of accounting. Matching the expenses to the time period in which they are relevant. Taxes or no taxes, expensing a long-lived asset in the year in which it is purchased is not the proper treatment.

Real peter rabbit, simple. Buy a machine. Useful life of 7 years. Machine costs $700,000. So the proper treatment is to put the machine on the books for $700k and then expense one-seventh of it for the next seven years. At the end of 7 years the machine is (theoretically) used up and has no value on the books. Also, by the matching principle, the total cost of the machine has been expensed over its useful life.

Need to keep separate capital expense and operating expense.

In the above "driller" example, the driller does not have a loss in year one, by proper accounting treatment. The cash goes out in year one to pay for the machine, but the income statement only shows an expense equal to the proper, annual, capital depreciation for the machine. Also need to keep P&L treatment separate from cash flow treatment.

No depreciation does not make sense. Depreciation is necessary for proper accounting treatment. It is also real. Used assets are worth less than new assets.

Help me understand how this applies to real estate and used airplanes (or any sort of used equipment). Real Estate and Used Equipment does not follow the imaginary depreciation schedules used in accounting, but they still get applied.

If you really really wanted to be accurate, business assets would be marked to market (or at least "orderly liquidation value") every year, and business accounting and tax accounting would use the same set of books.

However, that would require all of the newly un-employed tax accountants to go get certified as appraisers.

Username Protected · **Posted:** 23 May 2025, 10:17

The fundamental issue here is that "value of asset" is not the same as "profit".

We don't tax people on unrealized stock gain (not yet, anyway), and we don't tax them on the value of holding intellectual property (like patents or copyrights), so why do we tax them on the basis of having a machine of some value? Why is having a machine a "profit"? The tax law penalizes businesses for having machines by treating them like it was profit and then only allowing a portion of their true cost to be set against revenue.

Don't confuse the asset value on the books with making a profit, those are wildly different things.

Mike C.