Tax Incentives Blog

Perhaps you have a lot of fixed asset additions each year that include a variety of tangible personal property and real estate assets, but are unfamiliar with or not particularly savvy in the ways of cost segregation. Or, perhaps your business is finally emerging out from under the recession’s thumb or you’re a thriving startup that’s recently become taxable and may now reap the rewards of cost segregation and broadened real estate tax strategies.

Although the final regulations are most significant for fixed asset intensive industries (i.e. electric utilities, telecom, retail, etc.), or real estate property owners that consistently incur capital expenditures to maintain their facilities, small business owners are also seeing some advantages from certain aspects of the Tangible Property Regulations.

Small businesses like yours are able to deduct many expenditures immediately and accelerate the depreciation on others, rather than spread them out over a longer period of years as annual depreciation deductions.

To claim tax deductions, a property owner needs to apply the non-cash depreciation expenses against their taxable income, which effectively offsets tax liability. Instead of utilizing a straight-line depreciation method for real estate assets to capture tax deductions, your clients can accelerate the depreciation of fixed assets via a cost segregation study that generates significantly more tax benefit.

Depreciating assets over a shorter tax life results in considerably more annual tax deductions for the property owner, especially within the first five years of the building’s lifecycle. Further, by conducting a formal cost segregation study, you are assured the correct and most beneficial taxable life for all assets, based on relevant tax rules established by the IRS.

CPAs have a core set of accounting responsibilities they carry out on a daily basis. Today, however, CPA firms and the clients they serve are expecting accountants to know and do more.Clients that are property owners want to take advantage of every tax savings opportunity possible. This means CPAs need to help them navigate the complex world of cost segregation and accelerated depreciation for fixed assets. 

All cost segregation specialists are not created equal. Before outsourcing your client’s cost segregation study, you must do your due diligence to find the right service provider. Ask the following five questions to ensure your cost segregation specialist is equipped to maximize ROI and deliver an audit-ready study:

A taxpayer constructed a manufacturing facility for $12,081,885 and was depreciating the entire capital expenditure as a 39-year straight-line cost.

“My building’s too small and cost segregation only works for large properties.”

“Cost segregation must be done the first year of ownership, and I missed the boat.”

“I can’t change my accounting method and I have no idea how to amend tax returns.”

There are a number of misconceptions surrounding cost segregation, which ultimately leads building owners to miss too many deduction opportunities.

As the owner of a CPA firm, you know you need more efficient workflows to meet client demand for improved tax return outcomes. Helping clients navigate the complex world of tax credits and incentives ensures maximized tax savings (which improves the outcome of their tax return).

The right tax credit software system enables you to house all of your client projects and information in one place. With a singular standard for organizing your client project information, you encourage a collaborative environment with high visibility into client projects.

In order to help your clients generate revenue, you have to pursue every avenue of savings. If you fail to assist them in pursuing tax incentives, you are neglecting an important component of your clients’ financial savings plans.