Tax Season is always a burden. For small business owners, it may even be worse. Many entrepreneurs are caught off guard when they find themselves owing unexpected amounts money to the IRS and then struggle to find the funds to pay them off. Little do they know there are countless incentives available in the IRS code that can relieve this financial burden, many of which your CPA may even be unaware of.
The IRS does a great job keeping this information under the radar. This article is the first of a three-part series that explores different ways you can stop owing additional money to the government and possibly get cash put back into YOUR account.
The first incentives we will discuss are cost segregation studies. This federal program was designed for business owners who own commercial properties or those who have made significant improvements to the space they’re leasing. Undergoing a cost segregation study allows business owners to reclassify certain components of a property from commercial to personal. Reclassification can shorten its depreciation time for taxation purposes, thus potentially lowering any business taxes owed. This study reviews exterior site improvements like the landscaping and the parking lot and interior upgrades such as light fixtures, special plumbing, flooring, millwork, electrical, cabinetry and furnishings.
Facilities that often undergo this type of engineering-based review include hotels, apartment complexes, restaurants, office complexes, manufacturing facilities, funeral homes, golf courses, large retailers, medical clinics and hospitals. Due to recent tax reform efforts, this practice has become more accessible for small and midsize property owners, providing them an opportunity to reduce federal taxes. In some cases, businesses have even received refunds as a result of this analysis.
How do you know if your facility is eligible? There are some criteria that the facility and its owner or lessee must meet:
- The facility was purchased or built within the last 20 years and values more than $500,000.
- Renovations and improvements completed in the last 20 years must meet or exceed $250,000.
- The taxpayer must have paid federal taxes in the last three years.
Ninety percent of all commercial properties are eligible for this program. To find out if your business qualifies, complete this quick three-minute survey. Ray Hodges can then conduct an assessment and provide an estimate on your facility.
Stay tuned for more specialized tax incentives to alleviate tax obligations. It’s your money, until you give it away!