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Are drones tax deductible?

10/2/2019

4 Comments

 
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Drones used for business purposes are tax deductible.  The deduction is not allowed until the drone is placed in service which typically requires a drone business to have customer revenue and the drone pilot to have a FAA commercial part 107 license.  A nondrone business that uses drones can also deduct drone expenses that are business related.

Drone IRS Depreciation 
Drones under $2,500 for small businesses and $5,000 for businesses with audits can be expensed.  For larger capital expenditures a business can use a one time section 179 deduction or bonus depreciation to write off the drone.  Alternatively capital drone expenses can be capitalized and depreciated as computer equipment over an IRS accelerated period of 5 years or over an industry class life that is typically 5 years for professional service businesses.

Drone Startup Costs
Startup costs for drone businesses like training and test preparation are deductible when business starts generally when customer revenue begins.  These startup expenses under $5,000 can be written off immediately.  For amounts over $5,000 a 180 month amortization period is required.  Lifetime learning tax credits are an alternative for classes at qualified education organizations.  This credit is 20% of cost of education limited to $10,000 per year and to taxpayers of low or middle income.  This credit does not carry over and is non refundable.

Avoiding IRS Hobby Status
Preventing your drone business from being classified as a hobby allows you to deduct expenses directly from drone customer service revenue.  Running a drone hobby as a drone business could very possibly trigger an IRS audit. If your drone business is legitimate and not a hobby, keeping accurate and extensive records could help prevent the classification of your business as a hobby.  In addition to demonstrating your professional approach to your business, records and receipts can help document your profit motive. A written business plan is often a prerequisite for indicating an intent for profit, and it can also show ways in which you are modifying your business to cope with losses.

FAA Business License 
Before performing drone flight services for your drone business, you must take and pass the FAA Part 107 exam. Without a FAA Part 107 certification, you cannot legally fly a drone for any business purpose. Here are the steps to getting your FAA Part 107 certification:
  • Study for the exam.
  • Register with FAA IACRA’s web-based certification/rating application.
  • Choose an approved testing center 
  • Call to schedule your exam.
  • Take the exam – you will need a passing score of 70% or higher.
  • Submit Part 107 exam score  on IACRA FAA application. 
  • Receive a temporary certificate 
  • Receive a permanent Part 107 certificate.
  • Two-year renewal – you must pass a biannual flight review every 2 years.

IRS Tax Filing Status and LLC Status for Income Tax Purposes
Most drone pilot businesses are going to start as part time or be solo businesses so they will most likely be reported on Schedule C profit or loss from business of a sole proprietor.  This schedule C is included with your personal 1040 tax filing annually so no additional separate filing is required. If a limited liability company (LLC) is created legally the drone business will still most likely file on a schedule C as a sole proprietor because the LLC is disregarded for tax purposes and no extra filing is required.  On the schedule C you can list the LLC employer identification number (EIN) and business LLC name.  

Randy Tarpey CPA works year round at Sickler Tarpey & Associates in Tyrone Pa and is available to answer your drone  tax questions.  Let me know how I can help you or improve the information on this website.  Contact us via the contact page on this website or RandyTarpey@gmail.com.

Disclaimer: This article is intended for informational purposes only. Nothing contained on this website is tax or legal advice.  You should seek legal counsel before acting upon information on this website.




4 Comments
James Wood link
10/28/2022 09:43:03 am

Hello,

Thank you for creating this page. I have a question I'm hoping you could help with..

Do you know if a registered drone photography LLC is subject to quarterly federal excise tax and if I need to file a form 720?

I read more info on the IRS website for applying with my EIN and one of the bullet points reads "Does your business own or lease an aircraft or a fraction of an aircraft?" I purchased the drone as an individual but it is an aircraft and I will now be keeping the proper customer revenue records for ensure I am not classified as a hobbyist business. Thanks for any advice and help.

Respectfully,

James Wood

P.S. I just purchased the domain name so there is not a functioning website yet to view. Cheers

Reply
randy tarpey link
10/31/2022 09:55:14 am

James,

Per the IRS audit guideline drones are exempt from excise tax on Form 720 in chapter 3 because their maximum certified weight at takeoff is less than 6000 pounds and they tend not to have regular routes.

https://www.irs.gov/pub/irs-mssp/air_transportation.pdf


Randy

Reply
Broderick Whitlock
3/7/2023 07:46:43 am

Do I have to have my FAA license before purchasing for tax purposes?

Reply
Carpet Repair Colorado link
4/4/2023 04:53:56 pm

Nice bblog post

Reply



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