The complexity and length of the federal tax code hide many great opportunities for businesses to save money. The length and complexity that allows the largest corporations with their army of attorneys and accountants to take advantage of tax incentives that small businesses might be missing.
Most small businesses rely on CPAs to get their tax prepared and filed but most CPAs may not have the proper expertise and experience to help their clients capture complicated tax incentives.
What are some of the available Specialized Tax Incentives?
Cost Segregation of Commercial Property
Engineering based cost segregation studies permit commercial real estate owners to reclassify real property for depreciation purposes and reclassify it as more rapidly depreciating personal property. This reclassification can result in a cash flow increase of 5% – 8% of the building’s cost. “Cost Segregation Studies are a lucrative tax strategy that should be considered in almost every real estate purchase.” -US Treasury Department
Research & Development Tax Credits or Manufacturing Incentives
Any company that designs, develops, or improves products, processes, techniques, formulas, inventions, or software may be eligible for an R&D Tax Credit. In addition to the current year, businesses may claim for the last three years where credits were not taken. “The R&D credit is designed to spur growth through innovation by enabling taxpayers with research-related expenditures to receive credit against their regular income tax liability”- American Institute of CPA’s (AICPA)
Hiring Tax Incentives
Many employers are not aware of the many tax incentive programs available to help companies hire and keep employees, such as “The Work Opportunity Tax Credit, Hiring Incentives Restore Employment Act, and the Small Business Jobs Act”. The PATH Act of 2015 significantly expanded the platform of Hiring Incentives. Congress and the IRS want you to take advantage of these tax incentives which can average $2,400 per qualified employee you hire.
Commercial Property Tax Audits
Commercial property owners who have not appealed their property taxes this year, or ever, are likely overpaying the government by thousands or tens of thousands of dollars. Besides the reduction of commercial property tax liability going forward, a commercial property tax audit may recapture overpayments from previous years.
“Cost Segregation” savings example:
Mr. Client acquired commercial property for $3,500,000 five years ago and never completed a Cost Segregation Study. However, after finding out he may have an opportunity to benefit from a study. Mr. Client hired an expert, who identified 20% ($700,000) of components that should have been allocated to 5-year life instead of 39 years. Mr. Client was happy when he realized the IRS would allow him to “catch up” $700,000 of missed accelerated depreciation on his next tax return!
Why doesn’t every building owner and CPA know this?
The answer is simple; it is not their area of expertise. Although some building owners and CPAs have substantial experience with Cost Segregation, most do not. There is a dearth of true educators in this field, which unfortunately leads to misinformation. These factors have caused countless thousands of building owners to miss out on this powerful tax savings strategy.
What is a Depreciation Schedule? What Does It Look Like?
A depreciation schedule is a detailed document that can include items such as:
- A breakdown of all building allowance costs.
- A breakdown of all equipment costs.
- The rates at which you can claim different items and the effective lifespan estimate of each item.
- A breakdown of how much you can claim per annum based on the financial year-end.
Sample Depreciation Schedule
The source of the attached Incorrect and Correct depreciation schedule samples are from GMG Specialized Tax Incentives.
Incorrect Depreciation Schedule: What makes the “Incorrect” attachment below incorrect, is that it contains items such as equipment, vehicles, etc. And does not contain any of the items we are looking for in a Commercial Property Cost Segregation (purchase of a building, land, construction, renovation, major updates, signage, landscaping, wiring, HVAC, etc.).
Correct Depreciation Schedule: What makes the “Correct” attachment below correct, is that it also contains items such as the items we are looking for in a Commercial Property Cost Segregation (purchase of a building, land, construction, renovation, major updates, signage, landscaping, wiring, HVAC, etc.).
Remember: There is no standardized format for a Depreciation Schedule, every client will look unique. The important thing is the items you are looking for to appear on the schedule as listed above under “Correct Depreciation Schedule”
Lack of expertise can cause missed savings opportunities
Reduce your tax liability and increase near-term cash flow by implementing programs and strategies at the state, local and federal levels resulting from special tax code provisions that are often not fully captured. Documentation required for these programs is often outside the scope of work provided by your CPA and/ or financial team.
All is not lost!
If you own a building and have not had a Cost Segregation study performed, you have not missed the boat. Hundreds of thousands, or even millions, of dollars in tax savings may be available to you. Now that you are aware, let’s see how much you qualify for!
Your Savings Pro can help you Identify specialized tax incentives opportunities. Our business process and tax experts will work with your team, get the required information and run the detailed engineering studies and data validation to enable you to take full advantage of what’s available.