Tag Archives: #taxsavings

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

%d bloggers like this: