As inflation approaches 9% this summer, Americans have felt its full effect on household and business expenditures. If your business is spending more on raw materials and vendors, why not spend less on taxes? After all, inflation is nothing more than a hidden tax on earnings. One avenue to explore, amidst this economic turbulence, is reducing your end-of-year tax bill through tried-and-true methods.
While cutting expenses and bolstering revenue are foundational strategies, today’s business owners must consider strategies that can reduce overall tax exposure. There are, of course, well-known business credits such as the Employee Retention Credit and the R&D Tax Credit, but those only apply to taxpayers under certain circumstances. For deductions, the Qualified Business Income deduction (QBI) is a substantial opportunity but also has limiting factors. Another massive deduction opportunity, which was recently bolstered by the TCJA, is Cost Segregation.
A Cost Segregation study is a deduction opportunity for building owners and real estate professionals who have purchased commercial property within the last 15 years. A cost segregation study allows building owners to take a larger depreciation deduction through an engineered appraisal of the building. With this study, a building owner can write off 20-30% of their building’s purchase price in the first year, which leads to significantly reduced income taxes. The potential losses created by these large deductions can also be carried back to obtain refunds for previously paid taxes.
With this freed-up cash flow, a building owner can reinvest their dollars as they see fit. Most view this tax strategy as essential because it allows taxpayers to access their depreciation deductions in the first year instead of over the course of decades. This allows taxpayers to truly take advantage of the time value of money equation, which has become ever more critical in the last two years. Given the current inflationary metrics, the phrase “a dollar today is worth more than a dollar tomorrow” couldn’t ring truer. This is why we believe all commercial property owners should look at how they can keep more of those dollars by using cost segregation.
If you’re a building owner or have clients that own commercial property, please reach out to Alternate Tax Solutions for a free quote. In this quote, we provide an estimation of your depreciation deductions and an estimation of your overall tax savings. If you have any questions please call 1-401-949-5200.