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Professionally Speaking

Tax-time talk

Keep good records, just in case

It has been said that the biggest mistake you can make is to think that you are not working for yourself. That statement is particularly true in aviation. Some CFIs are employees, some are self-employed, and many are a mix of both. In this field of ups, downs, and lateral moves, perhaps all CFIs should think self-employed, even if they are not so at present.

Nowhere is that more important than in the area of bookkeeping. The typical CFI may start any year self-employed, then change employment status during the year. It is vital that you keep good records. I know many airline pilots who instruct on the side, and they have been keeping records for decades. I know other pilots who have shifted back and forth between instructing, flying charter, and flying for the airlines.

Since this is the time of year when we all begin to think about income tax reporting, it may be a good time to contemplate keeping better records for 2004 and future years.

It is probably a good idea for all CFIs to keep records like a little aviation business. You may or may not file as a business, but the advantages of having good records will eventually-and probably sooner than later-be important for most CFIs.

The easiest way to keep records is to open a separate checking account just for that purpose. Deposit all of your aviation income that is not reported on a W-2 to that account, and pay all aviation expenses from that account. If you pay cash for an aviation expense, add up the cash receipts regularly-at least monthly-and reimburse yourself with a check from that account. Put nothing else in that checking account and write no checks for anything else. If you write a check to yourself that is not for an aviation expense, call that check an "advance."

Bear in mind that in any given year, you may or may not be able to deduct those expenses. That depends on factors too numerous and complex to be explained here. The point is, you will have the records if you need them. At year's end you can take them to a tax professional and get advice that might change the way you file your tax return. Should you take the standard deduction, or itemize deductions? Did you know that it is sometimes possible to deduct business expenses and still take the standard deduction? I can't help you with this, but with good records the tax professional can help you decide.

What expenses should be recorded? Any expense that might possibly be considered to be an aviation business expense. Remember, you don't need to make the final decision when you spend the money. Just keep the record.

Did you go to an aviation event? Pay all of the expenses from your aviation account. Did you pay for aircraft rental and instruction yourself? Go to an airshow? Buy a kneepad, a plotter, or a chart? Run it through the aviation business account. If you go to lunch with a student put it down, but be sure to jot down the student's name and what aviation business you discussed.

In short, keep good records of everything you spend on aviation. If nothing else, the records will give you a better picture of what you are really earning. They could also help you decide-with the help of a professional-if it would make sense for you to incorporate. (When in doubt go to the pro before the end of the year. Never take a major step without consulting a pro. A friend cost himself a chunk by incorporating without talking to a pro.)

Keeping good records is a little bit of a nuisance, but you will never regret it.

Ralph Hood, an aviation speaker and writer, has been flying for more than 33 years and has amassed more than 3,000 hours of flight time. He is a multiengine commercial pilot with an instrument rating.

By Ralph Hood

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