By Dr. James M. Dahle, WCI Founder
Is first class worth it? You have probably heard the phrase: “Fly first class or your heirs will!” Well, when should you fly first class? It's useful to encourage those who have a hard time spending their money to consider spending it on things that would make their life easier or more enjoyable. Here at The White Coat Investor, we believe there are five things you can do with money, and they should all be done well:
- Earning
- Saving
- Investing
- Spending
- Giving
All can bring happiness to us and do good in the world. Today, we're going to talk about spending, and specifically, about spending money on flying. There are seven levels of flying that we will discuss, and for the most part, they reflect the economic status of the flyer. We're not talking about being a pilot today; we're just talking about being a passenger.
Here are your seven options for flying high in the sky.
#1 Not Flying
Here's the reality for the vast majority of humankind and even most Americans: it's a big deal to take a flight. Flights are expensive. As a kid, I only left my home state five times (once was for me to be born, and twice was for funerals). One of those times, we drove for four full days to get to the next state. That's the reality for most people. If they go on vacation, they are driving and they're staying with family. And it probably doesn't happen every year. So, let's acknowledge the immense privilege it is to be able to fly anywhere at all for leisure. Not flying is what the lower class and, frankly, a large portion of the middle class do.
#2 Economy Class
OK, you have enough money that you can go somewhere on a plane. Or maybe you don't have the money, but you somehow cobbled together a bunch of credit card rewards or airline miles or talked your employer into letting you combine a business and pleasure trip, etc. Now you can spend a few hundred dollars and fly somewhere. The class you fly in is called “economy” or “coach.” There isn't much legroom. You don't get meals. There may even be some drama in the cabin. But you can watch a movie or two, and then you're there in a whole new place! This is all most people aspire to and it's wonderful, and most of us probably would like to do it a little more than we do. Flying around to visit places just for leisure tends to be an upper-middle-class activity; let's say an income of $60,000+ per year.
#3 Premium
Every airline calls this something different, such as “Economy Plus.” You pay just a little more, and you get just a little more. Maybe you board a little earlier or you get some additional food. You sit closer to the front of the airplane (faster escape and less turbulence). But mostly, you get a couple more inches of legroom. For tall people, moving up to premium is a big deal. For everyone else, it's kind of “whatever.” Again, we're talking about the upper-middle class here since it doesn't cost that much more to buy a premium seat.
#4 Business Class
As we talk about the next two classes—business and first class—it's really important that we distinguish between flying domestically and flying internationally. When you fly internationally in these classes, you get a lot more and you pay a lot more. In fact, on most domestic flights, business and first class are the same thing. It's really business class, but it's called first class. On domestic flights, you can expect to pay 2-3X what that coach seat costs. That's right, it's not just a little extra. It's dramatically more. Enough so that you might consider just buying the seat on each side of you in coach instead. So, what do you get for all that spending?
- More legroom
- Wider seat
- Sit at the front of the plane (quicker to get off, less turbulence)
- Your seat reclines more
- More attentive service
- Priority check-in (skip the line checking in)
- Priority boarding (you get on the plane first)
- Check two bags free
- On small regional flights, you get your checked carry-on bag first
- Maybe you get free entry to the airline lounge before or between flights
- Pre-flight drink
- Maybe the flight attendant will hang your jacket and stow your bag for you
- More likely to get a free meal—it's also probably a better meal and you might even get to pre-select it
- Booze is free
- Your mixed nuts might even be warmed
- Outlets to plug in your computer or phone (although these have been showing up in coach)
- No additional charges for entertainment (again, showing up in coach these days—movies make passengers behave more and complain less)
Once we turn to international travel, everything changes quite a bit. You get all of the above, of course, plus more.
- Your pre-flight drink comes in a real glass
- You eat on real china with real silverware
- Your bed lies completely flat
- There is slightly more privacy
- Maybe a chauffeured pick-up and drop-off service
- Might even have access to a fully stocked bar
- Bigger TV/movie screen
- Noise-canceling headphones
- Massaging seats
Naturally, the price also goes up. You generally pay 3-5X as much for the ticket as a coach seat (which is already a four-figure amount). That's right, you get one seat for the same price as taking your whole family to Paris. What kind of income do you need to start thinking about flying business class? Certainly, a 1%er income, assuming you're paying for it and not being upgraded to it. But to me, it seems a pretty reasonable expense on a $500,000+ income.
#5 First Class
Now we turn to international first class. Start with the list above for business class. You obviously get all of that. Plus, you get:
- Space: a swiveling, lie-flat seat. You're the only one in your “row,” so you're never stepping over someone
- Service: You may be only sharing your flight attendant with three other passengers
- Privacy: You may even be able to close the door so nobody else can even see you
- Sheets: The flight attendant will even make them up for you. The idea is that you're actually going to get a decent night's rest on this flight
- Gourmet meals ordered off a menu
- Shower spa: You're not only going to arrive rested, but you're going to be relaxed and sweet-smelling, too
- Technology connections
- Goodie bags
Pretty awesome experience, eh? It varies by airline, of course, and as a general rule, this is not a strength of US carriers. One website ranks the first-class experience as follows:
- Singapore Airlines
- Etihad Airways
- Air France
- Lufthansa
- Emirates
- ANA All Nippon Airways
- Qatar Airways
- Cathay Pacific Airways
- Thai Airways
What is a first-class flight going to set you back? Plan to spend at least $5,000 and perhaps even five figures on this flight. Expect to pay 6-10 times what an economy seat costs. A 1%er income is enough to do this occasionally, but if you're going to do it regularly, a seven-figure income seems appropriate.
#6 Charted Jets and Fractional Ownership
Now, we're moving into the next category. It's a category that is quite a bit more expensive than first class and isn't necessarily always better. It's just different. It's not even used that much internationally, and it particularly caters to those for whom time is money—not necessarily those looking for maximum luxury. This experience is provided by a number of competing companies, including the following:
- NetJets
- Wheels Up
- VistaJets
- XO
- GlobeAir
- Magellan Jets
- Jettly
- Superior Air Charter (formerly known as JetSuite)
- Victor
The idea here is that the plane is yours while you're using it. With just 6-12 hours of notice, you'll have a plane, a pilot, and maybe a flight attendant at your beck and call. The planes typically carry 6-12 people, and they can fly anywhere in North America, plus maybe the Caribbean and Central America, non-stop. They leave when you want to leave. No going through the terminal. No TSA. Minimal hassle from customs. While it costs extra, you'll usually have a car +/- a driver waiting for you. Next to the plane. The plane generally gets you to your destination a little faster, too.
Businesses find this particularly attractive. Not only are you basically flying in a domestic first-class level of comfort, but there's no one else on the plane. So, you can work, negotiate deals, etc.
Naturally, the plane is stocked with your choice of meals, drinks, and entertainment. But what you're really getting here is your time back with maximal privacy. No connecting flights. No problem flying into a smaller airport. You, your spouse, and your two kids along with your sister and brother-in-law get to feel like royalty. Or the entire C-suite can fly together, work out the details of the merger, get the deal done, and still eat both breakfast and dinner in their homes at the usual time. When your CEO makes $8 million a year, you don't want them spending their time sitting around an airport chatting with TSA.
The models for how you pay for this are all over the place. If you fly a lot, you should look into fractional ownership. Perhaps you pay $500,000 one time for your share of the planes/company. Then, you pay $15,000 a month as a maintenance fee. Then, you pay perhaps $2,000 an hour for every hour you use the plane. Your total cost, of course, depends on how much you use it. The more you fly, the less each flight costs.
If you don't fly very much, say fewer than 25-50 hours a year, perhaps you just buy a pre-paid card. Twenty-five flight hours might set you back anywhere from $150,000-$250,000, depending on the company and the plane. But 25 hours might be six round trips with eight total people ($200,000/48 = $4,000 per person per trip). That might only be 10X the cost of flying economy. If it's just you commuting from LA to New York City, it's 80X the cost.
You'll pay a little more per flight if you charter the flights individually, but $8,000-$9,000 per hour seems to be the approximate price range.
Let's be honest, though. Once you arrive at this level, if you have to ask the price, you can't afford it. How wealthy should you be when you start to consider either chartering jets or fractional ownership? Well, if you're going to spend $250,000 a year on airfare, I would think a multi-seven figure income would be appropriate. What's $250,000 when you make $4 million and take home $2.5 million? That's just 10%, and if it really improves your quality of life, why not? You can't take it with you when you go. You certainly should have an eight-figure net worth at this stage.
#7 Your Own Jet
You can also just buy the stupid jet yourself, along with your own pilots and crew. Aside from being very wealthy, you probably need to be flying a lot to justify this. (Who wants a pilot that rarely flies?) A Cessna Citation Latitude jet costs $10 million-$19 million. Obviously, some jets cost more, and some cost less. The maintenance is not insignificant either, and, for some reason, the pilots and crew want to be paid every month. A nine-figure net worth seems like a reasonable baseline for this expenditure. Let's be honest, though. You're not getting a lot more than the fractional ownership companies were providing. The main thing is just a status symbol. You can say: I own a jet.
Fly first class or your heirs will. But make sure you can actually afford to do so while meeting your financial goals.
What do you think? How do you fly? When did you decide you had enough to move up to the next level? Would you ever consider buying your own plane? Comment below!
#8) churning credit card sign-up bonuses to earn international business/first class tickets as a by-product of normal monthly spend.
great hobby for residents and fellows who have a very predictable income and budget.
Mostly covered under # 2. There’s an opportunity cost to those tickets and the hassle as you likely could have had cash for the same spend. The tickets might be worth more, but it’s not free.
Love this post!
Our family (married docs/3 kids under age 10) chartered our first jet during covid. We contacted the local flight school/airport to find the plane and paid 12K for the trip. This got us a 90 minute flight in a light jet to our destination , an suv at the airport (not plane side thanks to an trump rally at the same airport…bad luck!), two pilots, fully stocked snacks/coffee/drinks, and a return the next day. This allowed us to travel to a destination that would have taken 12 hours to drive (poor access via interstates from our home) in 90 minutes and stay relatively safe pre-vaccine. It was awesome. Best part was the privacy, lack of managing young kids in an airport/boarding/masking/etc and ability to come home whenever we wanted just by texting the pilots when heading to the airport. This was the only time I regretted our lack of social media as I would have loved to post some shots on that instatok-book thing (that’s the social media, right? haha!).
One of the bills during covid temporarily eliminated the significant excise tax on private jet travel (saving 7-10%), fuel was very inexpensive at the time, and the charterer was light on business so I’m sure the same trip would be ~5K more now. Definitely very glad we did it, but don’t think it will be a yearly thing. P.S. we fully thank WCI for making this possible. no way we’d have the cash flow or net worth if we didn’t buy and follow his book in 2015!
I have fractional ownership of a few jets too. I got them when I bought VTI.
I’ll show myself out.
1 simple trick; Bogleheads HATE HATE HATE this!
Buying an airplane is a great idea for readers of this blog.
Maybe not a Gulfstream 5 by yourself, but a practice could afford a used PC-12.
Congress has killed off your wife’s photography biz that somehow seems to incinerate cash. Congress also killed off your wife’s equestrian biz that incinerates cash.
But CHUCK Schumer still like to brag that he flys on an airplane that doesn’t have a flush toilet. So game on aviation enthusiasts!
If you like investing in Real Estate in your taxable account for the depreciation, the you’re going to LOVE LOVE LOVE buying a $200k Cirrus SR-22T and using MACARS depreciation. Buy a $1MM Pilatus PC-12, write off like $500k in the first year of depreciation! Want those sweet sweet “loss” K1s? Want your schedule C making you so poor you can do a Roth IRA in the Biden era? Want losses, but you’ve brainwashed yourself to think real assets mean 3am toilet calls? Buy a plane, bro.
nb4, the PC-12 has a landing speed of like 75knots bro. The weekend warrior can land it. The hardest part is starting the engine. A hot start will force to add three years to your FIRE date. Lol. I’ve owned two PC-12s. If you can’t afford it, just start prescribing Pristiq to all your patients, and then start scheduling patients for 6min “med checks”. I’m a OMFS… and i turned root canals into a sweet annuity to buy private airplanes!!! I ask my patients if they feel sad sometimes while I’m drilling, most answer yes- and BOOM! I throw them a fluoxetine Rx. I’ve started getting creative with my ICD10 codes when I bill their insurance, but nobody cares!!! I’m tempted to tell my Billing Girls to try “ W55.41XA“ (bitten by a pig). Seriously – look it up. (Anyone can prescribe psych meds. NOBODY CARES!!!)
I know I’m like semi- banned from this blog, but I thought I’d share. If anything, just to show WCI is too proud to have the greatest tax write off all time appear in his comment section.
Do them math – this beat a back door Roth, a cash balance plan with a 5% crediting rate, or any RE investment where you are not doing 3 am toilet calls.:
buy plane. Lease it back to a flight club ( like JATO in the SF Bay Area). MACRS depreciation. Avoid real estate 3am toilet call. Write off $400k year one. I’m doing a loss carry forward on my last PC-12 for the next four years. Hate on me bro.
Thing lands on 2000’ grass runways, and can take a family+bags from SF to Chicago. I stared flying one at 250 hours, and never felt unsafe flying in VFR conditions. The PT6 never quits. The hardest part is starting the engine- seriously. The new ones have a FADEC, and make a hot start impossible.
Yes you can finance an airplane at like absurdly low interest rates.
If you want, WCI, as penance for calling you out- I’d be interested in doing a guest post for you on how to get your taxes down 0 with airplanes.
You haven’t been banned yet. You just have your comments held for moderation because you posted a bunch of inappropriate ones. Guest post policy can be found here: https://www.whitecoatinvestor.com/contact/guest-post-policy/
Almost all submissions by regular readers are published.
All right- once I sober up, I shoot you a post on how to:
-Maximize insurance billings by using optimal ICD10 codes
-practice management using 6min “med checks” over Zoom. 10 patients per hour!
-using the The Modified Accelerated Cost Recovery System (MACRS) to buy an airplane to reduce a high-earners’s greatest expense: taxes
-using a crediting rate above 5% in your Defined Benefit Plan (by setting up a real pension, not some bs cash balance plan that you roll over into an IRA)
-why smart people do dumb things with their money: like avoiding all actively managed funds. 80% of fund managers under perform the SP500. But not when you adjust forVOLUME
[Ad hominem attack deleted. It might be easier for you to avoid these if you stop posting while under the influence. That does explain a lot though.]
While I have no clue the accuracy of what this person posts, this is a little scary if this person is a doc with these comments.
Get rich by buying airplanes… why didn’t I think of that?
Moms both flew first class on their (presumably) final flight of their lives to move here. One on her 5 figure (SS and RMD from her share of ex’s pension) income and the richer one on us! And her son flew by her side though most of his flight was paid for with vouchers from a few covid cancelled flights.
There are a couple of other ways to take control of air travel, which are not as cost prohibitive.
Jets cost A LOT! Turboprops and cabin class prop jobs such as Pilatus, TBM, twin Cessnas and Piper Malibus are available at many small airports as a part 135 charter operation. These are much less expensive than leasing a jet. There are resources such as Plane Smart (no financial relationship) or even a local flight school or FBO (fixed base operator) which may lease a plane and pilot and let you avoid the hassles of the major commercial operators.
Then there is getting a license and getting your own plane or better still, co-ownership where you have complete control. In this regard, to avoid being a doc statistic, you need to fly diligently and regularly because this is not our day job. It’s better to do when you are single without kids but I have friends who have done it much later and done it very well. Initial investment is about 10k for a private license and about 10k more for an instrument rating (highly recommended). This is not for everyone which is where a part 135 might be more accessible and a great option.
All that being said, flying oneself has no parallel. I have flown throughout the US, Canada, Bahamas and even Grand Cayman with a Cuba overflight. I fly at least twice a week and have 1900 hours. If you are a flying doc, FLY, a lot because that’s what it takes to not make the news.
Ditto on the general aviation recommendation. I have had my pilot’s license for about 8 years. I started in a 172 , moved to a Cherokee 6, then a Malibu, and just bought a legacy PC12 with a co-owner. I’m able to fly to my satellite offices (oral surgery), and save a significant amount of time in travel.
Plus, the airplane can be used for other business travel for the practice as well as personal. If you have the time, flying your own plane is 100% the way to go. And it doesn’t have to be a jet. I flew cross country in a 40 year old 6 seat piston a few years ago and had the time of my life.
Make sure you get your life/disability insurance in place before you start taking pilot classes as this can lead to exclusions for coverage or higher premium rates.
Very timely for me. We are flying business class to Italy this weekend, our first time in business class for an international flight. It is the highest level available on United, and I am looking forward to the experience of the flight almost as much as the vacation itself! We previously would pay up slightly for the Economy Plus section, which was only slightly better than economy for us. We are both short, so the additional legroom did not matter much.
In the era of COVID, I have increasingly paid extra to control where I sit and surround myself with others who have the resources to pay more, too.
I’m surprised by how many people seem interested in owning at least a portion of their own plane. I’m going to stick with the old adage, nothing that flirts, flies, or floats.
Two comments:
1) One disadvantage to private jets for businesses is that it poses significant risks for small businesses to have their entire management team on a single slight. My wife handled a workers compensation claim on a general aviation charter jet that crashed taking four of the six company officers.
2) In some cities like Cincinnati, there are jet services that are regularly scheduled charters (think Morris Air of the 1980s). They operate out of secondary airports to other secondary airports in other markets, They cost 2-3x the cost of commercial flights but reduce the amount of time in the airport.
There was a joke in Germany, where the country’s #1 and #2 leaders at that time had more wives than Donald Trump each, that went this way: Q- “Why are they not allowed to fly on the same plane?” A- “The (seven apparently!!) widows’ pensions would bankrupt the nation.”
Some of the cost info feels dated. Domestic first class is normally cheaper than 2x-3x economy except the premium transcon routes with flat beds between SFO/LAX and NYC/BOS. I see buy-ups under 50% for most flights when booking in advance.
Another nit is that international Biz class can be had for much cheaper by flying to a lower income destination. For example, our four-flight biz class trip to Bulgaria with connection in FRA was 40% the cost of the round trip to FRA.
We meet your criteria for flying international biz class but I view buying high-fare tickets as a bad habit when a little bit of effort (finding big sales, using card points) can provide a 50%+ discount
Good tips.
I just bought the first first-class ticket of my life (for my mom, not for me, haha), flying cross-country. It’s a true domestic first class, the longer legs are on wide-bodies with a 3-class layout and the seats are lay-flat. Not the true top-tier international first-class with showers and private lounges, but about the best you can get on a domestic flight. Fare was about $1,200, only slightly more than a similar flight in economy for just under $1,000. Subtract the value of two checked bags and the cost difference is negligible. Found it through a regular search engine, not some “travel hacking” / points deal.
That’s probably an exception though. On a flight to Europe a few years ago on a domestic carrier, I looked into upgrading my wife’s and my tickets to business class, and the cost would have gone from $800 to $3,500 per ticket. That was an easy no.
Interesting that it was only 20% more.
We only fly once every two or three years (I know, “only” is relative!) and the first time I upgraded to Business I knew I would never go back to coach. I have terrible flying anxiety, have done everything I can for it, from workbooks to hypnotism, it was getting worse every time I flew (and yes, tried Xanax years ago, started to not be able to get through a flight without out and decided it had to be mind over matter). What an amazing and different experience for me, the anxiety was still there, especially every time we hit a few air bumps, but I was in a totally different place mentally and emotionally to deal with it. In fact, I would rather fly less frequently and save up for Business class than fly coach ever again.
Sounds like a good reason to fly business!
I have some back issues that make flying business or first class the better option, plus the hassle factor is way, way less flying in a higher class. Less time getting through the TSA lines, easy boarding, lots of room, easy getting off the plane. Saves a fair bit of time and is way less stressful overall.
I fly east on Delta and they will often try to upsell you into first for a couple of hundred bucks over an economy plus seat. I fly west on American and had status with them, and got upgrades pretty easily. So this all is definitely worth it.
Great ranking comparison. Would be nice if you could write something similar about cars or houses haha
Not a bad idea on the cars. The houses are so local though. What makes sense in San Francisco would be totally messed up in small town Indiana.
Yeah, I figured housing comparisons would be too unfair.
For cars though, I’ve seen doctors drive Lexus SUVs, but the Lexus alone does not indicate their annual income or net worth (it’s only a Lexus after all).
I’d be curious to know what you think is the car equivalent of owning the jet, haha.
Most docs who have their financial ducks in a row by 5 or 10 years out should be able to drive most cars. But if you want to get into exotics etc. then I suppose you could come up with some guidelines. I think Dave Ramsey’s is a pretty good guideline-don’t own more than 50% of your gross income in cars/boats/planes etc. So if you make $400K, you could have two $50K cars and a $100K boat and be okay.
I don’t like Ramsey’s 50% rule. Most people don’t have boats or planes and end up spending 50% of their gross income on cars. That’s way too much in my opinion. My rule of thumb is no more than 25% of gross HH income in total value of cars. New/used/trucks/sports cars/exotics doesn’t matter if they can be had under the value limit.
It’s your money and you get to make your own rules, but I think 50% is reasonable. $25K for a $50K income, $50K for a $100K income. $100K for a $200K income. All seems reasonable. Obviously you reach financial goals faster if you spend less.
What’s not reasonable is having $100K in cars etc if you’re making $50K.
I flew international first class (via upgrade) a few years ago from DC to Paris. I was like a kid in the candy store and didn’t want to sleep despite it being a red-eye flight with a really comfortable seat. I couldn’t resist the Dom Perignon (apparently I was the only person drinking it and it was freshly opened just for me. I saw the last 1/3 of the bottle being poured out as I deplaned … what a shame). I couldn’t resist the filet mignon. I couldn’t resist playing different movies. I couldn’t resist trying out each and every setting on my seat, audio/video device, and air controls. I was a total dweeb. I think I did manage to sleep 1.5 hours but I wasn’t that rested when I arrived.
I bet it works better the second time, but I bet you don’t enjoy it as much!
Dr. Dahle, just curious…. Given the success of your business in recent years, where do you choose to sit on the plane these days?
Going to Europe twice this Winter, both times in economy or economy plus. Might regret that. But I’m also going heli-skiing in March. I confess I gave some serious thought to NetJets this summer but I don’t think we fly enough to justify it. It seems silly to go straight to NetJets when I’ve never bought a first class ticket.
Also, remember everything is more expensive with kids, especially when you have … 4? Vacations that were relatively cheap as a childless couple become much more of a financial strain, even for higher-income folks. It seems reasonable to fly first-class or business with the kids in economy…. they don’t need the leg room, or the free alcohol. As long as they’re old and well-behaved enough to be unsupervised for longer stretches.
I’d be interested to read a follow-up post on the tax implications of these forms of travel. For example, I’m pretty sure that you’re not supposed to deduct the cost of first-class travel even when it’s 100% for business, unless there is some specific reason why the upgrade is necessary – only seat available, long-haul flight where you need to be rested and ready to conduct business upon arrival, or maybe as a perk for a highly compensated executive. Also, our under-the-influence M. D. friend above seems to think your business can just buy an aircraft and depreciate it for a massive tax savings. I have to imagine you can only depreciate the percentage that’s used for business travel, and you better keep records to prove it in an audit. Anyone who flies on a company-owned aircraft for personal travel is supposed to reimburse the company for the fair market value of the trip, which as you point out can be easily in the 5-figures.
Unfortunately, I’ve never been in a position where I had to think about the deductibility of first-class or private-jet travel, so I haven’t looked into this in detail.
You’re right about deducting business expenses.
But I’ve never seen anything that said you couldn’t deduct a first class expense. You can deduct an entire airplane ride if it is used for business. The IRS doesn’t require you to make smart business decisions to deduct business expenses. It does require you to make a profit eventually or it will reclassify your business as a hobby though.
Business expenses are supposed to be “reasonable” but it’s pretty easy to justify first class as reasonable if it allows you to work better en route or get sleep before an important meeting etc.
I’m not a tax pro, but I imagine that first-class airfare could violate the “ordinary and necessary” standard in some cases. Like, you’re definitely allowed to deduct a car rental for a business trip, but what if the car is a Rolls-Royce or a Ferrari? Most people can work on a plane just as easily in economy as first-class. A useful test would be, if you were sending an employee instead of yourself, would you pay for a first-class ticket and expect to get more than the price difference from an economy ticket in the value of the “business” they do for you? If not, then you should probably not deduct the first-class ticket for yourself. That said, I’m sure lots of folks do deduct first-class tickets, with paper-thin justifications, and never get challenged. I’d be interested to hear a tax pro’s take on this.
Gray area for sure. I wouldn’t want to defend a Ferrari rental. But I could defend the Bird scooters we used in Austin as a company to get to dinner, even if we spent an hour after dinner cruising around town jumping off curbs.
Nah nah nah,
With airplanes you just have to pass the 50% test. Somehow, everything I seem to do is Locum Tenens, or I’m looking for a new office building in a new area to expand my practice… etc. For me I buy personally (fractional ownership) with my business partner who is also a pilot. We then LEASEBACK to the practice AND to a local flight club. The key is “PROFIT SEEKING MOTIVE”. And heck- during COVID, we made money on the leaseback to the flight club. Lots of YAY AREA people did not want to suffer the indignity of donning a respirator to fly with the PLEBIANS on a 737-MAX that’s going to have a runaway trim and crash. (I heard the new trend in Psychiatry is 12 patients per hour. That’s the spirit! ) Me and my partner from my OFMS practice made and LLC and we file Form 1065 and Schedule E. Also do your googles on BONUS DEPRECIATION. With the Trump Tax plan, we got 100 percent bonus depreciation starting in 2017. Sadly, it has a sunset clause and ends Dec. 31, 2022. Sad!
Private airplane and modern art with a hint hint wink wink this up and coming artist with my cousin who works at a university museum who will appraise it for 15x more ten years later when you make a very nice donation of said piece of modern art.
My airplane habit may be more costly and dangerous than my Dilaudid habit, but I break even most years and only pay for the JET-A I use. Also- if you are looking into this, GO BIG! I lost money on my SR-22T/cessna leasebacks. I have made money on my PC-12 leasebacks. Works great for moral building. We take the staff on a trip to Catalina Island once a year; they seem to derive higher utility from that than from their 401k profit sharing new comparability distribution. Does anyone else get the blank stare after you explain, “You’re going to get $5k, but you shouldn’t touch it for the next 30 years.” My staff seems to value each selfie at the FBO at approximately $100. Do the math on that.
I works if you like airplanes (ergo, monetizing your hobby) and buy within your means. I’m not talking the RJR Nabisco air force here- I’m talking a PC-12 and you fly it your self when you’re not leasing it back to a flight school/club. You need to keep lots of cash on hand for surprise repairs.
There’s a lot that’s concerning here, from probably-illegal substance abuse to definitely-illegal tax evasion. WCI, does mandatory reporting apply to commenters on your blog? I wouldn’t want this person within 100 feet of my face with a sharp object. This is not a joke comment, I’m completely serious.
Using MACRS depreciation to take losses on aircraft leaseback businesses is 100% legal.
My Dilaudid use is 100% legal and under the care of a licensed physician. Or maybe it was obviously meant as a doctor joke 🤠. But hey- when I was in training was when they started pushing pain as the fifth vital sign. But since you made libelous accusations of calling me a tax Evader, I’ll just leave you wondering.
Art donation write offs come every few years in Congress. Look it up. I do not take advantage of this.
I’m not a physician, but I stand by my concerns about substance abuse, in terms of potential impairment for both delivering patient care / surgery, and also flying a plane, possibly with passengers on board. If I were a mandatory reporter and had access to information that could identify this individual, I would consider sharing it with regulators in one or both arenas. That’s all I’ll say about that.
The tax advice offered runs the spectrum from correct and legal to criminal tax evasion, and I’ll try to break it down for the benefit of anyone reading this. ClownWorld is correct that the IRS offers up to 100% bonus depreciation on business aircraft. This means that in the year the asset is purchased, up to 100% of the purchase price may be depreciated. But, the depreciation is limited to the percentage that’s used for business (eg. if used 80% for business, only 80% may be depreciated in any case). This offers something of a loophole, because you can make sure you use the asset for a high business percentage in the year it’s purchased, keep great records, and then get more lax in later years, and you’ve already taken the depreciation. Late-year purchases make it easier to boost the business %. But, if business use ever drops below 50%, then the asset automatically gets converted to personal and you’re required to recapture all the deprecation you’ve taken, which is a big tax bomb. Also, whenever the asset is disposed of, the gain (which is the sale price/FMV if the basis is 0) then becomes taxable, so depreciation isn’t forever-free money.
Personally, I’ll be glad if/when this loophole is closed, it seems too fertile for abuse. Capital assets like aircraft usually don’t lose 100% of their value in less than a year, which is what depreciation is supposed to be for. However, I am in favor of bonus depreciation on small stuff like a $1,200 laptop.
As a side note, it may or may not be beneficial to the taxpayer to depreciate an expensive capital purchase like an aircraft in a single year, if it drops you down into a lower tax bracket. It may be better to take smaller depreciation deductions for many years so that all the depreciation is in the top bracket.
Deductions for deprecation and other expenses (fuel, maintenance, etc.) are always the percentage of business use. The IRS knows that this is an area rife for abuse with cars, aircraft, etc. so if ClownWorld is ever audited they will be looking very closely at how business and personal use are separated.
“…everything I seem to do is Locum Tenens” – if he is doing legitimate locum tenens work and is paid on a 1099, then those trips are business, but if the trips are extended to vacation, then the business percentage of the trip is only the percentage of days actually worked. It’s not legal to fly to Hawaii for a week, work one day of locums, and deduct the entire trip; only 1/7 would be business and the rest personal. Family members’ travel is also non-business and gets factored in.
“or I’m looking for a new office building in a new area to expand my practice… ” – This sounds like a much thinner justification. If someone is legitimately looking for a new office space then that is a business trip, but an auditor is going to ask a lot of questions to make sure. Can you show a business plan to demonstrate you’re actually considering expanding your business, vs. just giving a pretext to deduct a vacation? Are you working with an agent in the area? Did you actually visit properties that are for sale/rent? Why was a trip necessary given that listings are available online? Even if you are looking at properties, only the days you actually spent looking are deductible.
Leasebacks are fine; it’s totally legit to lease a capital asset like a plane to third parties. Self-dealing on this would be a big red flag in an audit though.
Trips to Catalina island sound like entertainment, which is non-deductible, even if it’s for the benefit of employees. Maybe some pretext is offered for a business purpose but I doubt it would hold up in an audit.
Most concerning is conspiring with a third party to fraudulently over-value artwork and get a big charitable deduction. I’m no lawyer but this is the kind of thing people go to prison for. Readers of this blog shouldn’t need to resort to illegal tax strategies like this to have a comfortable financial life, and personally I would much prefer to live my life free of worry about jail time.
Hope that helps.
I have no idea. The internet is a weird place.
When to fly first class? That’s easy. When somebody else is paying. Company trip or Portfolio income…
Read a lot of about flying – but gotta say you have laid it out very clearly and simply. The only one I would add to the end is now space flights! For this you need to be a multi-billionaire.
Not at the $250K price point.
Usually go economy or the occasional economy plus for leisure travel, strictly for the additional leg room (I could care less about any of the other perks.) I have picked up a few contracts in the South Pacific which is about 24 hours flying time with at least 2-3 connections coming from the east coast. There’s a reason it’s called “business” class as you can actually do work with decent wifi and not get bumped into or have to listen to the screaming child in the back. And the lie-flat seats are a lifesaver if you’re going to try and work the next day after arrival. Still don’t end up getting much sleep, but it’s worth it in not feeling broken for days.
Also, there is an additional premium to fly Europe in business or above. Pre-covid I found these tickets $6k+ vs. $3-4k to South Pacific/South Korea. At that high of a price point I feel like it’s even harder to justify given it’s only 7-9 hours flying time from East Coast to get into Paris/Amsterdam/Frankfurt…hourly rate approaching $1k/hour did give me some serious heartburn and would be hard to justify, even to my contractor.
But I’m still a lowly resident with student debt. Maybe the heartburn will be less once I reach FI 🙂