If you are planning to charter a private jet or purchase a jet ticket, there is good news and bad news.
First, the bad news. The 5,593-page Consolidated Appropriations Act, 2021, passed by Congress last night, provides ongoing federal excise tax exemptions and discounts for renewable energy, beer, wine, and other industries. However, the 7.5% FET pinned on private jet charters for domestic flights as well as trips starting or ending within 200 miles of our northern and southern borders has not been extended. That said, it will resume on January 1, 2021.
The good news is that there is still a chance to fly FET-free in the future. The taxable event occurs when you buy your flights, not when you fly. If you book and pay for flights before midnight on New Year’s Eve, your future flights will not be charged any excise tax.
Congress did not extend the vacation by collecting the 7.5% FET on domestic private jet flights. … [+]
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What about funded jet cards? You deposit money – usually at least $ 100,000 – with a Jet card provider. Travel expenses are deducted from your account for every flight. Some are sold by brokers and others by private jet operators.
While the IRS has no official position, at least a dozen companies believe the taxable event lies in the purchase of the jet card. These include many of the segment’s biggest players such as NetJets, Wheels Up and Sentient Jet.
In some cases there is a window of how long you have to fly. For example, NetJets’ Marquis Jet cards have a term of 24 months. Others let you deposit as much money as you want and promise tax-free flights until your money is gone.
This means that by the time the ball falls, there could be a literal Black Friday for jet card buyers. Savings can be substantial. Buy 100 hours on a Magellan Jets Gulfstream G450 and save $ 94,185 in FET.
Whether it’s a shoppers haven or a scenario where only fools rush in depends on how you fly and how willing you are to study the fine print.
But before we get to that, there’s the IRS.
Whether the chargeable event is when you buy the jet card or when you book your flights and the money is removed is indefinite. If the tax officer decides that your flights should be billed to the FET at a later date, it seems that ultimate responsibility lies with the operator – not you. However, consumers should review their contracts to see if your provider has an option to come back to you for the tax retrospective.
Are all jet cards the same?
The bigger problem is, are you on the right program? While jet cards offer convenience and predictability of prices, the rules and guidelines that govern how each provider charges flights and what additional costs are incurred make airline prices seem simple and straightforward.
For example, the daily minimums vary not only by provider, but also by aircraft category and even the deposit you deposit. At a high level, one could assume that Program A, with an hourly rate of USD 5,000 for light jets, costs less than Program B and costs USD 6,000 per hour. If you make one-hour flights and Program A lasts two hours or more like many others, you will be charged at least $ 10,000, 67% more than Program B, even though Program A’s hourly rate was 17% lower.
If you think that a $ 100,000 deposit will save you $ 7,500 in excise taxes, the example above shows that by selecting a jet card that doesn’t suit your flight needs, you can get all of the money according to your first return trip would return.
Another variable that can affect price is the fixed income service area, often referred to as the primary service area. The advantage is that you have your contractually agreed hourly rate, which is only calculated for the time you are flying. You don’t have to pay any repositioning fees.
Your friend loves his map provider and uses him to go to his home in the Bahamas. If it’s good enough for him, it should be good for you, right? Until you find out that Barbados is not in the fixed price range. When you call to book you are surprised to see that you have to pay for the plane back to the US after you are dropped off and the empty flight down to pick you up.
There are also long-term discounts that save $ 30,000 or more on coast-to-coast flights and discounts on qualifying round-trip flights that save up to 40% off one-way fares. Some Jet Cards have no surcharges on peak days, while others charge rewards of up to 100%. The number of peak days varies widely – from 0 to over 100, depending on the provider and program. This also applies to the cancellation conditions and the booking window. Some programs allow you to book less than 24 hours before your flight. Others require several days’ notice. The same is true if you want to make changes or cancel, which may be more common in a COVID-19 world. If you have to cancel within the deadline, you could lose the entire cost of your flight, potentially tens of thousands of dollars. Oh, and some programs include the cost of de-icing while others have costs that can go up to $ 10,000 for larger jets.
Other variables are a minimum age for unaccompanied minors – important if you want to fly with your grandchildren. Not all of them have WiFi. Even bringing pets with you is different – not all private jets allow your angry friends.
Not to bore you, but there are also minimal seat guarantees. Some programs only offer six seats in one beam, others even eight. This means that with one program you may be able to make your trip with a cheaper beam of light, while with another program you will need a medium or even super medium-sized aircraft. It’s all in the fine print.
In other words, while it might make sense to top up a few Jetcard hours before the end of the year, I only recommend doing so if you have a clear idea of where you want to go, who is coming with you, and what type of flexibility you have. Many programs are non-refundable. So buy wisely.