Tag Archives: taxes

The CARES Act and Cost Segregation – New Opportunities

30 Mar

The CARES Act, a $2.2 Trillion bill was passed in response to the Corona virus Pandemic. There are parts of this bill that will have a direct impact on Cost Segregation. Please contact me for more information or to assist you in helping your clients take advantage of this new information.

Net Operating Losses:

Allows for a five year carryback of net operating losses arising in 2018, 2019, and 2020. It also allows net operating losses to offset 100% of income (as opposed to being limited to no carryback and only to 80% income offset from carryforward losses under the Tax Cuts and Jobs Act of 2017 that was in place before the CARES Act).

Impact – Example – A Cost Segregation study is applied in 2019 which causes such a large depreciation deduction that the client reports a net operating loss in 2019. He can carry this loss back for 5 years and apply it to gains made in those years. This would result in a tax refund providing cash flow in a time of need.

Important Note – The 5 year carryback rules require you to go back 5 years and roll forward from there if the loss is in excess of the carryback years income.
Example – John Smith has income for the past 5 years, and a loss in 2019 as follows:
2014 – $75,000
2015 – $150,000
2016 – $400,000
2017 – $350,000
2018 – $195,000
2019 – $(425,000)
In this case John would roll the $425,000 loss back to the 5th year 2014 and offset all of that income, then roll the remaining $350,000 to 2015 and offset all of that income, and finally roll the balance of $200,000 to 2016.

Qualified Improvement Property:

Qualified Improvement Property has been corrected to be identified as 15 year property meaning it would be eligible for 100% bonus depreciation. This change is effective for property acquired and placed in service after 9/27/2017.

Impact – Since the definition of Qualified Improvement Property was introduced, CSSI has been identifying this property as Qualified Improvement Property within our reports. This property is now eligible for 100% bonus depreciation, so previous clients with this type of property included in their reports can now retroactively apply bonus depreciation to these improvements. 

More Time:

With the extension of time to file for 2019 taxes, there are opportunities to still have Engineering-Based Cost Segregation done for any commercial or rental residential properties over $200,000.  

Contact Me Directly

Call me at 770-224-8504 or 888-780-1333
Email me by clicking here
Visit my website by clicking here
Visit my Youtube channel by clicking here

Maximize Your R&D Tax Credits

17 Feb

In research and development tax credits, some cost related to wages, supplies and contract research are eligible.  Many times, however, taxpayers tend to overlook some of the processes and work that can be included to maximize the tax savings.

Contrary to popular belief, R&D credits are not limited to things that have not previously been done.  Many think these credits are limited to new inventions like the cell phone, or the lightbulb, but that is not the case.  The Internal Revenue Service does not require that technology be revolutionary or new innovation to be eligible for these tax credits.  The only requirement is that products and processes be improved.

Unfortunately, those who could benefit from claiming R&D tax credits either fail to claim them, or leave money on the table, because they aren’t aware of all the activities that qualify.  R&D credits are a dollar-for-dollar reduction in income tax liability that is either underutilized or not utilized at all every year.

Here are some often overlooked qualifiers for R&D credits:

CLOUD COMPUTING NETWORK COSTS

Cloud computing server, platform and SaaS software application innovation costs may be qualified research expenses that are eligible for R&D credits.  Leasing cloud computing time is often cheaper and easier than purchasing locally hosted servers and outfitting data centers.  These expenses may be eligible when the cloud servers are located away from the taxpayer’s premises and operated by another.  The taxpayer must not be the only, or primary, user of the cloud server.

AUTOMATION THAT IMPROVES EFFICIENCY OF PROCESSES

Improving workflows and processes in manufacturing may also qualify by using process automation tools.  Automated shelving, labeling systems, and the use of robotic arms are some of the process automation tools that may be involved.  In the case of a robot, while the cost of the robot cannot be used for R&D credits, the time invested in designing the type of robot, how and where the robot will be used, and the testing involved may be qualified expenses.

ARTIFICIAL INTELLIGENCE AND MACHINE LEARNING

Any process of product that uses machine learning or artificial intelligence to determine how to better accomplish a process, or increase its efficiency, qualifies for R&D credits.  Machine learning can assist in the decision of where to place a robotic arm for the most efficient and effective use.

REPLACING AN OBSOLETE PART OR PRODUCT WITH NEWER TECHNOLOGY

A common scenario in which these expenses may qualify for the R&D credit, a piece needs to be replaced as part of a manufacturing process, but the supplier no longer makes the part.  If a direct replacement cannot be found, the taxpayer may change their product or process to accommodate a new part on the market, requiring design changes.  These changes may be related to size, functionality, geometry or other elements.

When the obsolete part is so old, new technology may also provide a better answer than a retrofit.  Research and testing must be done to accommodate the new technology.  If the taxpayer can provide proof of concept, demonstrate how the new technology improved the product or process, and document the failure points, they may be able to recoup the amount expended for design and testing.  The wages related to a marketing associate who provided the design input to the improvement or features that should be created through the new technology, but they must be able to show documentation of the individual’s contribution to the process, and that they had the sufficient technical experience necessary to participate in the design.

MACHINE LEARNING AND AI

Any product or process using machine learning or artificial intelligence to learn how to do something better, more efficiently, or faster, qualifies for R&D credits.  For example, machine learning might help a company learn where to place a robotic arm for its best use.

These are a few activities that might be overlooked in considering expenses for the R&D credit in manufacturing products and processes.  This is not an exhaustive list but may help in thinking through how to maximize your research and development credit.  Activities do not have to necessarily fit the textbook definition of research to qualify.

If you have questions about R&D credits or their application, please give me a call at Cash Flow Strategies, Inc.  We have a team of experts who can certainly answer your questions regarding this topic, Cost Segregation, Section 179, The 2014 Tangible Property Regulations, and the Real Estate Professional designation.

Contact Me Directly

Call me at 770-224-8504 or 888-780-1333
Email me by clicking here
Visit my website by clicking here
Visit my Youtube channel by clicking here

The Tangible Property Regulations for Commercial and Investment Property Owners

3 Sep
Tangible Property Regulations
Magnifying Glass and Tax

AN ADVANTAGEOUS TAX CHANGE

One of the largest changes to tax code since 1986 was passed in 2015, and these changes directly affect real estate owners and investors. These regulations are extremely taxpayer friendly, but most owners and investors are not aware of them. They are called the Tangible Property Regulations (TPRs), under code section 263a (1-3). The regulations put all the past court cases and past regulations into one single code that also contains a few interesting twists.

WHAT ARE THE TPRs?

The TPRs clarify which expenditures and repairs on buildings can be written down and which must be depreciated over 39 or 27.5 years. It is very advantageous for the building owner or investor to write down as many repairs as possible. This is because they not only receive a one-time expense of the entire expenditure but will also have reduced capital gains upon the sale of the building.

Generally, they are as follows:

The expenditure (or renovation) can be expensed if it meets these criteria:

  • done more than two years after purchase
  • did not make the component being repaired or replaced materially better
  • affected less than 33% of all the like components.

IRS SAFE HARBORS

There are also three Safe Harbors which allow certain expenditures to be expensed without IRS scrutiny.

  1. The De Minimis Safe Harbor is for expenditures under $2500.
  2. The Small Taxpayer Safe Harbor covers many expenditures on buildings with a purchase price of under $1 million.
  3. Routine Maintenance Safe Harbor is for expenditures to keep the building in its normal operating condition which will also have to be repeated at least once in the subsequent 10 years.

POTENTIAL REVERSALS

The amazing opportunity is under code section 481A, if past expenditures (not De Minimis or Small Taxpayer) which are currently being depreciated would not be depreciated today, (based on the regulations), they can be expensed in the current year.

So, the regulations will positively affect the building owner or investor moving forward but in addition can create a permanent tax deduction right now.

CONTACT ME DIRECTLY

For more information on the Tangible Property Regulations and other cash-flow producing and tax-saving strategies for property owners, contact me directly.

Call me at 770-224-8504 or 888-780-1333
Email me by clicking here
Visit my website by clicking here
Visit my Youtube channel by clicking here

Choosing a Firm to Conduct Your Cost Segregation Study

30 Jul

When you’re dealing with taxes, you want to do everything exactly by the book.  So, when you’re implementing accelerated depreciation of your assets, you want to be sure your cost segregation study is done correctly.  We’re here to help you get the tax savings you deserve and keep them by helping you choose a cost segregation firm that’s going to do everything right.

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Accuracy

Before you choose a firm, research cost segregation studies, and be prepared to ask the firm some questions. We’ve mapped out some things you should ask and be aware of before you decide to hire a firm to conduct this analysis. After all, it is your money; you should be able to take what’s yours and not have to return it because the analysis wasn’t conducted correctly.

Compliance

As you know, U.S. tax code dictates the rules you must follow. Because cost segregation is part of the tax code, there are suggested methods you need to follow if you are to conduct this type of analysis. You need to be sure that the cost segregation firm stays in compliance with all rules specified by U.S. tax code. Why should you be penalized for this third-party firm not following all the rules?

Specialization

You wouldn’t go to a doctor that didn’t know everything there is to know about your ailment; you would likely choose a specialist. So why should the cost segregation firm you hire be any different? You want to go to the firm that eats, breathes, and sleeps everything taxes. They need to know tax codes inside and out, and have researched past court cases on these related topics. Do your research and ask the questions so you can pick the firm that is the most knowledgeable about cost segregation analysis.

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Peace of Mind

Finally, when choosing a cost segregation firm, be sure to do your homework.  When it comes to your tax savings, this is especially important. You want to go with a firm that has in-depth tax knowledge and a substantial amount of rave reviews from past clients. You want to choose the firm that will defend their study in the event of an audit.

The best advice we can give you when choosing a cost segregation firm is to ask the questions, get answers and get your money back.

For more information, call me today at 770-224-8504, or email me at David.Wiener@cashflowstrategies.us.

Also, check out my video series, “The Cash Flow Minute.”

YOUR CPA MAY BE COSTING YOU MORE THAN YOU THINK: CHOOSE WISELY

22 Jul

Most of us like to spend as little time as possible with our CPA.  Our once a year meeting is plenty and we try to keep it as short as possible. Who really likes to talk about how much money the government is going to take from us this year?

Proactive or Reactive?

Your choice of CPA can have a huge financial impact, and I’m not speaking of the fees that your CPA charges you for doing your taxes each year.  Many CPAs operate reactively, simply accepting the documentation you send to them and preparing your taxes.  But by the time you have put together your receipts, donations, W2s, and 1099s together for the year, you have likely missed out on many great ways to minimize your tax liability and preserve your wealth.  You need to check your attitude toward working with your CPA, and both of you must take a proactive approach to your strategy.

The effectiveness of any CPA depends immensely on approach, timing and expertise when it comes to your taxes.  It is vital for you to know what to look for when you are choosing a CPA.  Failure to carefully choose will cause you to overpay your taxes, sometimes by a massive amount.  The optimal CPA, using the correct resources, can potentially save you tens or hundreds of thousands of dollars or more.

Finding a CPA

When you look for a CPA, here is what you need to look for.  The best CPA for you and your business will:

  • Be in regular contact with you regarding your standings and developments.
  • Consistently review your tax liability and manage it the best way possible within the tax code.
  • Have trusted advisors that can handle niche tax benefits and beyond.
  • Have a full knowledge of the IRS and be able to best represent you to them in case of an audit.
  • Be proactive in his or her approach, looking at all areas of your business to determine the best way to avoid unnecessary tax burdens.

For example, let’s say that you did your own accounting for last year and end up paying $25,000 in federal and state income taxes.  If you had a CPA who simply accepts your information at the end of the year and files your taxes, he might charge you $1,000 and bring your tax liability down to about $22,000.  Good deal, right?  Hold on … maybe not such a good deal.

The US Tax Code

The good news and the bad news are the same.  Our tax system in the United States is immense.  It is almost 75,000 pages and growing all the time.  As a result, there are thousands of intricacies, exceptions, rules and loopholes.  It is far more than the average person could ever fully understand, and they are constantly in motion.  

My Best Example

My dad was a CPA, and he always told me that “in order to be a CPA in today’s world, you need to be ‘ten miles wide and a foot deep’.  What he meant was, you need to know a little bit about a lot of things, and you need to know people who understand, and can help you with, the things you don’t fully understand.  He had a group of trusted advisors that could help him, and his clients, do the things that he couldn’t do well, and he used them.  My father was one of the best CPAs I have ever known.  His style was was not only proactive; he was relentlessly proactive.  He also always told me that “Tax evasion is a crime, but tax avoidance is mandatory.”  

It’s Not About The Fee

Your CPAs level of dedication is the crucial element.  A CPA cannot possibly understand and execute on the complexities of the tax code. Anyone can have a long list of clients, a beautiful office, and a great personality.  The long and short of the matter is the amount of time and effort that your CPA is willing to invest in ensuring that your wealth is managed in the best possible way. The fees that are charged by CPAs vary widely.  There are some cases where you get what you pay for, but that isn’t always true.  

What Makes The Difference?

A great CPA will bring in those who specialize in things like cost segregation studies for their clients who own, or renovate, commercial or investment property, or to identify R&D tax credits, retraining or other innovative tax credits for which you may qualify.  There are unique little-known tax strategies that cover all different markets, so to expect that your CPA will know how to use them for all industries is just not realistic.  But if you have a CPA you know who is willing to utilize all the methods at his disposal, you can rest easy knowing that your wealth is in good hands.

With the help of a solid CPA you could, possibly, get that original $25,000 in taxes down to somewhere closer to $10,000 plus a few thousand or so to free yourself of the stress of managing your own taxes.  THAT’Sa good deal!!

What you can do

If you don’t feel that your CPA is doing EVERYTHING possible to help you save on taxes, chances are very good that he or she is not.  If someone is overseeing your finances, you should feel comfortable, informed, and confident in that relationship.  Your taxes, your money, and your future is at stake.

I work with a large network of proactive CPAs across the United States.  I am confident in the ways they deal with their clients and the taxes they pay.  I’d be happy to introduce you to one or more of these great people to help you.  Just give me a call or email me.  I’m happy to help.

Are You A Landlord? Don’t overpay your taxes.

14 Jul

Many landlords, especially those who own smaller properties, are unaware of the tax benefits available to them.  Here is something that your CPA may never tell you about.

Real estate investors have a simple alternative.  Most will take the option of depreciating the initial value of their residential rental building in equal amounts over the allowable 27.5 years or their office building over 39 years.  In a $200,000 rented house, you would write off $7.272 per year in depreciation.  Many CPAs will recommend that you do your depreciation this way, the easiest way.


Straight line depreciation may be the easiest way for your CPA to apply your depreciation, but is it the most advantageous way for you and your cash flow?  Depending on your circumstance? Perhaps not.


Cost segregation is an IRS-defined method of accelerating your depreciation and, while it may be more complicated, it need not be difficult for you or your tax professional.  By using engineering-based cost segregation, your property depreciation is applied by depreciating all of its component parts, many of which may be depreciated fully in 5, 7 or 15 year increments.  By depreciating this “short life” property more quickly, you would receive an increased tax deduction now rather than waiting for 27.5 or 30 years to take its value off of your tax bill.  With the 2017 Tax Cuts and Jobs Act, that 5, 7 and 15 year property can all be depreciated the very first year.  That is called “Bonus Depreciation”

In essence, you are getting an interest free loan on your taxes from the US Government.  Think of it this way:  If I was going to give you $100,000, would you rather have it all now, or in 27.5 annual installments.  Getting it right away is a “no-brainer” because that money, if invested back into the business or smart investments, will yield far more money long-term than having me babysit your money for you for many years.

If you:

  • have property worth over $200,000,
  • intend to keep the property over 3 years, and
  • pay taxes

then I believe it would be in your best financial interest to, at least, investigate whether this is a good option for you.   I will complete a no-cost, no-obligation analysis of your property and I will let you know if this strategy would be profitable for you.  Your tax professional cannot, in most cases, provide you with the study necessary to maximize your depreciation.  We will work with your CPA to make sure you get all the cash flow you are entitled to.

I can also advise you of some other tax strategies that may be beneficial to your cash flow and profitability.  The 2014 IRS Repair Regulations, IRS Safe Harbors, and Building Systems Valuations may all be beneficial strategies to consider.  I’ll help you navigate these strategies.

And don’t worry about the IRS.  They have called this method of cost segregation the “certain method” of depreciation.  We have completed over 20,000 studies in all 50 states, and have never triggered an audit.  Should the IRS question your cost segregation during an audit, we will defend the study at no cost to you.  We have never had a study rejected or changed.

Go to my web site at https://davidwiener.cssistudy.com for more information, or schedule a time to talk with me at https://calendly.com/david-wiener/talk.

Hotels and Cost Segregation

6 May

U.S. tax codes require expensing assets such as vehicles, office equipment, and buildings over their designated recovery period. Depreciation accounts for the wear and tear on an asset and reduces the value of the asset over time. Depreciation is a non-cash expense which means money was not spent to create the deduction. To someone who owns commercial property including hotels, depreciation is a huge benefit because it reduces their taxable income.

Generally, on a depreciation schedule, hotels are set up to depreciate over a 39-year period. However, separating the structural and non-structural components of a building and accelerating the depreciation lives of the non-structural components can result in significant tax savings. Structural components include the building’s roof, walls, and foundation which depreciate over 39 years. Non-structural components can be depreciated over five years and include carpeting, molding, window coverings, security systems, and more. Property improvements like curbing, paving, and striping can also be segregated and depreciated over 15 years.

Hotels have many non-structural components that can be reclassified into shorter depreciable lives. Failing to properly separate these components can result in missed tax savings. Having a cost segregation study done on a hotel can help property owners realize these tax savings.

Since 1999, cost segregation studies have been recognized as an accepted method of accelerating the depreciation of property. Through reclassifying a portion of the building’s assets as business use, the cost segregation study lowers the property owner’s income tax liability, thereby increasing cash flow. Average savings to the hotel owner is between $50,000 and $70,000 per $1,000,000 of building cost. This savings can be used to invest in the business, pay off debt, or however they see fit; it is their money.

Cost Segregation studies have the potential to provide significant financial benefits to hotel owners— benefits that are most likely overlooked. With proper guidance from a reputable cost segregation provider, hotel owners can even take advantage of greater expensing of repairs and improvements under the 2014 Tangible Property Regulations.

If you have questions, I can provide answers. Contact me directly at 770-224-8504 for more information, or visit http://davidwiener.cssistudy.com

Businesses and Cash Flow

22 Apr

Business and Cash Flow

The first rule of business is to stay in business, and businesses need cash to operate. Every successful business keeps a close eye on cash flow for this reason. There are many tax-saving advantages for those who own or have improved commercial properties through tax law. If you own or lease commercial or income producing property and you are not taking advantage of all that US Tax Code has to offer, you are actually diminishing cash flow.

Let’s look at how your business can easily increase its cash flow by using the cost segregation method of depreciating your building.

Cost segregation is a way for commercial property owners to accelerate their building’s depreciation, saving significantly on income taxes. Within the first five years of building ownership, an owner can save up to $100,000 for every $1 million in building costs. To maximize cash flow, an owner or lessee who has paid for improvements can have a cost segregation study performed.

At CSSI, we perform an engineering-based study to ensure you comply with US Tax Code rules and regulations. Our team of specialists will segregate parts of your building that are deemed non-structural. Non-structural items include carpeting, flooring, cabinets, specialty lighting and electrical, etc. These and other non-structural items are placed in accelerated tax lives. After the analysis, your CPA will adjust your depreciation schedule from the conventional 27.5-/39-year schedule to a 5-, 7-, 15-, and 27.5-/39-year schedule.
A cost segregation study reduces your taxable income and results in lower taxes paid. Using this cash surplus to reinvest in your business or pay down debt is a great way of maximizing the time value of money.

At CSSI, our tax experts will help your business generate more cash flow through an engineering-based study. In some cases, the calculations from our study can be necessary to realize benefits from the 2014 Repair Regulations and the 2017 TCJA. Contact us today, and we can provide you with a no-cost preliminary analysis, and we can facilitate a discussion with you and your CPA or tax professional.

Contact me directly at 770-224-8504, or schedule a conversation with me by clicking here, to see how much you can add to your cash flow this year. There is, as always, no cost or obligation.

It’s Your Money . . . Keep More of It!

The Cost Segregation Estate Planning Strategy

12 Oct

estate-planning

If someone dies owning commercial or rental residential real estate, a highly effective tool for reducing the tax burden on the estate might be a cost segregation study.

When a property owner dies. their heirs receive a step up in tax basis to the current fair market value of the property.  Any recapture that the decedent would have been required to pay upon the sale of the property is forgiven.  Using an engineering-based cost segregation study to accelerate the depreciation on the  pre-stepped up cost basis provides a windfall of immediate tax deductions that are never recaptured on the sale.  The estate must, however, act very quickly to take advantage of this benefit.  The study must be conducted and implemented before the due date of the decedent’s final income tax return.

Commercial buildings are normally depreciated over a 39 year period, and residential property is depreciated over a 27.5 year period, straight line.  An engineering based cost segregation study uses accounting and engineering principles to identify non-structural building components that can be depreciated over a much shorter time period (5,7 or 15 years)

The studies do not generally increase the amount of deductions over the life of the property.  By accelerating the depreciation, they generate net-present-value savings.

When this type of study is used in an estate-planning context, a cost segregation study can substantially reduce or eliminate taxes owed on the decedent’s final federal income tax return.  It also avoids a potential disadvantage, namely recapture.

Timing is everything

It is not necessary to perform the cost segregation study before a building owner’s death, but it is vital to complete and implement it before the decedent’s final tax return is filed.  If the deadline is missed, the opportunity is lost, as the benefits of a study cannot generally be claimed on an amended return.

To preserve and maximize the benefits of this strategy, it is vital to identify the opportunity early and to work with a reputable, experienced cost segregation firm that has the experience in implementing this type of strategy.

CSSI – Cost Segregation Services Inc. is the premier cost segregation company in the US.  With over 20,000 studies performed and not one IRS audit caused by our studies, we can help you in all ways to maximize the benefits of an engineering-based cost segregation study.

Contact me today for further information.

BIG Tax Savings for Commercial Property Owners

9 Apr

If you own or lease commercial property and pay taxes, here is a great way that you can potentially save BIG on your taxes through an IRS-approved cost segregation study.  This is another “Cash Flow Minute” by David Wiener, “Mr. Cash Flow,” CEO of Cash Flow Strategies, Inc.  Find this new series of videos here, or visit the Cash Flow Strategies, Inc. web page at: http://cashflowstrategies.us

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