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View Full Version : CFI Taxes


wmuflyboy
09-03-2008, 02:33 PM
I am considered an Independent Business Owner or Independent Contractor (i dont know if there is a difference) at the school that I teach at. My paycheck does not have taxes taken out of it obviously. I know that I am going to fill out some sort of 1099 form next year but thats about it. I have been saving about 25% of my paycheck to pay in for taxes. My question is what have you other CFIs in the same situation have done in the past?? I have heard that you should pay in quarterly instead of all at once to avoid a penalty fee for just paying once. But I also heard that this is not true. Any websites or advice on the right way to do these type of taxes would be appreciated. I know that we arent all tax professionals but anything helps. And no, not paying in at all is not an option haha!!:D


also, I was just wondering what is good stuff that I can use for deductions. I have been keeping my gas receipts, clothing for work receipts, and keeping track of my mileage. I was told anything related to your job can be deducted.


Luckydawg
09-03-2008, 06:23 PM
Cash, cash, cash! Give your students a discount for paying your wages in cash. CFI wages are ridiculous and Uncle Sam should not take anything for one qualifying for food stamps!

As a self-employed contractor you should deduct everything that you possibly can.

Not paying is not an option, I agree, but paying the smallest amount that you can get away with is......

Good luck,

vagabond
09-03-2008, 06:48 PM
You do not fill out the 1099, the school does. When you file your tax return, you put the amount shown on the 1099 onto Line 11 (business income) and you also need to fill out Schedule C. You may also have to pay self-employment tax. And as luckydawg said, you should deduct expenses to lower the amount of earnings. The goal is to have a lot of expenses to offset the income. This, of course, begs the question why anyone would agree to be an independent contractor since you do not make money! Like my grandmother used to say "no fart to show for all your work."

I recommend using one of the tax software like TurboTax. It's so easy even this old lawyer can do it! And if your 1099 shows some threshold income, you might even qualify to have your taxes done by a volunteer with the VITA program, which is available all over the country, in every town, big or small.

Or you could always ask your questions here on the forums. :)


joepilot
09-03-2008, 07:08 PM
This one always gets me mad. A lot of fly-by-night FBOs try to screw their employees by making them independent contractors. This gets the FBO out of paying its share of employment and unemployment taxes.

The IRS uses a number of tests to determine whether or not somebody is an independent contractor. Do you negotiate with each student about the rate that they will pay, or does the flight school set the rate for instruction? Does the student pay you directly, or does the flight school collect the money and pass it to you? Do you get the full amount that the student is charged for instruction, or does the flight school get some of it? Do you have your own insurance, or does the flight school provide it? Would your boss object if you also instructed at another FBO at the same field? (If so you are definitely not an independent contractor. Come to think of it, if you have a boss, you are not an independent contractor.) If a student shows up with his own airplane, and wants instruction for an instrument or commercial rating, does your boss want some of the money from the instruction? Do you show up at work in the morning and find a new student on your schedule that you didn't know about? (You are probably an employee.) Did you negotiate with the FBO about your hourly rate, or all instructors of a given level paid the same?

If you own your own airplane, and offer instruction, you are clearly self employed. If you yourself arrange to rent airplanes from the FBO and charge the students for instruction and some margin above the rental, you are also self employed.

If the student rents the airplane, and contracts with you for instruction, again, you are self employed.

As a new instructor, you probably won't pay much, if anything in income tax, but you will have to pay full medicare and social security tax of 15.4%. This is both the employee and employer portion, and the primary reason your FBO wants you as an independent contractor.

Joe

ryan1234
09-04-2008, 08:49 AM
I am considered an Independent Business Owner or Independent Contractor (i dont know if there is a difference) at the school that I teach at. My paycheck does not have taxes taken out of it obviously. I know that I am going to fill out some sort of 1099 form next year but thats about it. I have been saving about 25% of my paycheck to pay in for taxes. My question is what have you other CFIs in the same situation have done in the past?? I have heard that you should pay in quarterly instead of all at once to avoid a penalty fee for just paying once. But I also heard that this is not true. Any websites or advice on the right way to do these type of taxes would be appreciated. I know that we arent all tax professionals but anything helps. And no, not paying in at all is not an option haha!!:D


also, I was just wondering what is good stuff that I can use for deductions. I have been keeping my gas receipts, clothing for work receipts, and keeping track of my mileage. I was told anything related to your job can be deducted.


If you want to continue instructing for a while... it may be wise to look in to forming an LLC. As a freelancer you have a decent amount of liability on your shoulders... a company can hold you vicariously liable in certain circumstances.
just as joepilot said the IRS decides the nature based on three things:

behavioral control, financial control and type of relationship.

right from the horse's mouth:
http://www.irs.gov/businesses/small/article/0,,id=98846,00.html

btw you probably can't be an Independent Contractor for a part 141 school

The IRS website has the protocol for quarterly payments

wmuflyboy
09-04-2008, 11:54 AM
so there is no confusion, my situation is as follows: i have a boss who owns the flight school. we do 141 and 61 training. there is no negotiated rates with the student. it is a set rate that my boss has made for instruction. the student does not pay me in cash, rather pays the school for the airplane and the instruction and then my boss hands me a check based on my hourly rate and how many hours i had flown the previous 2 weeks before (for example, the school charges $35/hour and I get $20 of it). if a person has their own airplane and wants to get their inst or comm license, he/she still pays the school for instruction and i get paid accordingly. all of the instructors make the same level pay rate as well. im guessing this doesn't make me self-employed or an independent contractor. so now that is out of the way, what do i do when it comes to tax time?? Im guessing I should just Turbo Tax it and call it a day....

joepilot
09-04-2008, 03:05 PM
You are an employee. You are not in trouble, but your boss could go to jail for tax fraud.

It sounds like you will be given a 1099 tax form at the end of the year. Turbo tax is good, just start with Schedule C, which is for self employed people. Your boss is getting you to pay his share of your medicare and social security tax, and he is getting out of paying unemployment tax.

If you get ****ed at your boss, wait until you get your 1099, then drop a dime to the IRS. I understand that there is a reward of 10% of additional tax collected if you provide evidence of tax cheating.:p

You would probably want to wait until you are no longer interested in working there to do this.:D

Joe

ryan1234
09-04-2008, 03:42 PM
joepilot is exactly right... you are an employee and you are getting screwed.

I've heard of FBOs doing this where they charge the $15 dollars as a "facility fee" - which is BS. It may benefit you to tell you boss that you now require $35/hour so you can pay your SS/MC. Remind him that if the IRS gets wind of what he is doing, he could go to jail and/or loose a lot of money. If he chooses to still charge you the "facility fee" or doesn't put you on his payroll... find another job.

It is really not possible to be a independent contractor and work 141 at all!

The only problem is that right now you are making about +/- $15/hr and still are liable in certain situations.

jared4271987
09-04-2008, 11:19 PM
"The IRS uses a number of tests to determine whether or not somebody is an independent contractor. Do you negotiate with each student about the rate that they will pay, or does the flight school set the rate for instruction? Flight School does. Does the student pay you directly, or does the flight school collect the money and pass it to you? Passed to me. Do you get the full amount that the student is charged for instruction, or does the flight school get some of it? The school does... Do you have your own insurance, or does the flight school provide it? My own :) Would your boss object if you also instructed at another FBO at the same field? Yep. Big problem if I did. (If so you are definitely not an independent contractor. Come to think of it, if you have a boss, you are not an independent contractor.) If a student shows up with his own airplane, and wants instruction for an instrument or commercial rating, does your boss want some of the money from the instruction? No question. Do you show up at work in the morning and find a new student on your schedule that you didn't know about? Ha. All the time. (You are probably an employee.) Did you negotiate with the FBO about your hourly rate, or all instructors of a given level paid the same? The same..."

Sounds like I'm one of those getting screwed huh?

vagabond
09-05-2008, 05:52 AM
In what little spare time I have, I run a VITA program under the auspices of the IRS. This meant that I have to attend an IRS-sanctioned course on basic to intermediate taxes.

If you receive a 1099 MISC, the IRS presumes that you are an independent contractor, so you file as one. By tax time, it's too late to change or recharacterize your status.

wmuflyboy
09-06-2008, 08:09 AM
You are an employee. You are not in trouble, but your boss could go to jail for tax fraud.

It sounds like you will be given a 1099 tax form at the end of the year. Turbo tax is good, just start with Schedule C, which is for self employed people. Your boss is getting you to pay his share of your medicare and social security tax, and he is getting out of paying unemployment tax.

If you get ****ed at your boss, wait until you get your 1099, then drop a dime to the IRS. I understand that there is a reward of 10% of additional tax collected if you provide evidence of tax cheating.:p

You would probably want to wait until you are no longer interested in working there to do this.:D

Joe

So you are saying that all the FBOs that charge $35/hr for instruction are cheating on their taxes and screwing their employees if the employee is not making $35/hr also?? Wouldnt there be no FBOs in business if everybody knows about this???

ryan1234
09-06-2008, 09:43 AM
So you are saying that all the FBOs that charge $35/hr for instruction are cheating on their taxes and screwing their employees if the employee is not making $35/hr also?? Wouldnt there be no FBOs in business if everybody knows about this???

That is a really weird question. FBO's can charge whatever they want for instruction if the instructor is on the payroll as an employee and they also can pay the employee whatever. If the instructor is an independent contractor he/or she will need to set the price for that given service (i.e. instruction) and receive all of it. If an FBO is charging $35/hr for instruction (i.e service) and giving the contractor a set rate of let's say $20/hr - that is illegal according to the IRS, whether they remain in business is not a question as many illegal practices go on everyday. If the FBO rents the aircraft only, their profit would come from the aircraft rental, not an extra part of instruction.

joepilot
09-06-2008, 10:01 AM
So you are saying that all the FBOs that charge $35/hr for instruction are cheating on their taxes and screwing their employees if the employee is not making $35/hr also?? Wouldnt there be no FBOs in business if everybody knows about this???

No, not at all. The FBO can charge the customer as much as it likes, and pay its instructors as little as they will accept. However, if a business has employees, that business is required by the IRS to withhold the employees portion of social security and medicare taxes, and then pay a matching amount as the employers share, and send it to the government. They are also required to pay unemployment taxes and usually workers compensation insurance. States also collect taxes or fees from employers based at least partly of wages paid. Employers like to pretend that their employees are independant contractors to get out of these extra expenses and paperwork. When the IRS notices that workers have been misclassified they go after the employer for back employment taxes, penalties, and interest. However, they have to notice first. Many employers get away with this scam for years, and sometimes forever.

There is a long checklist of things that the IRS uses to determine whether or not someone is an independant contractor, some of which were mentioned earlier is this thread.

If the flight instructor collected all the money that was charged for flight instruction, then that would be one data point on the checklist saying that he might be an independant contractor.

If the student is charged a combined rate for dual flight instruction, and pays with a rubber check, does the flight instructor get his pay docked for the amount attributable to the flight instruction? If so, this would indicate independant contractor status. If the boss eats this kind of loss, then probably an employee.

Joe

WBTax
09-08-2008, 10:40 AM
As far as you are concerned right now, you are being treated as an independent contractor and you will fill out Sched C at the end of the year. If you believe that you SHOULD be an employee and the employer is treating you wrong, you can "turn in" the offender to the IRS and they will make a determination of contractor/employee status. Keep in mind, however, that if it is a small company, they will likely find out who turned them in. The IRS has actually created a form you can attach to your return so that you can do the reporting easily.

There are advantages and disadvantages to being contract.

Cons: Double the Social Security & Medicare Tax (Extra 7.65%)
Pros: Taxes are computed AFTER deducting allowable expenses.
You can possibly put away more for retirement, too using SEPs or Solo-401ks.

The expense side though....watch out for incredible deductions! Watch out for unscrupulous preparers. Expenses need to be ORDINARY and NECESSARY for that particular job. You can't deduct pilot socks and underwear! You can deduct other expenses, but only in proportion to your contract job versus your day job. (Example: You for XYZ Airlines and get a W-2. You sideline for DEF as a contractor training other pilots. You earn $30K from XYZ and $10K from DEF. You can deduct 25% of your pilot's license, sunglasses, caps, etc from the DEF contract position on Sched C; the other 75% can be deducted as a Misc Unreimbursed expense on Sch A, but subject to a reduction.)

R Klein, EA

(I am a federally licensed tax specialist).