Often when I am first introduced to a business owner who owns a commercial building and I offer doing a complimentary assessment to discover if he or she qualifies for a Cost Segregation Study and what other Tax Credits they may qualify for and are not taking advantage of, many of them immediately tell me “My CPA Handles That.” Or even after I have provided them an assessment showing thousands of dollars in savings in Cost Segregation alone they take the results to their CPA only to have them to say that they don’t need to proceed. Really. The business owner can’t explain to me why the CPA shot the Cost Segregation Study down, but his trust in the CPA’s opinion is the final authority.
You Should Not Expect Your CPA To Know Everything About Taxes
In many cases, the conversation from the CPA probably went something like this with the client:
“You are not getting additional depreciation; you are accelerating depreciation by allocating cost to a shorter life. I advise against such a strategy as there can be future tax implications and also there is upfront cost involved.” This position may be due to the presumed negative capital gains tax consequences. But, this is not an issue if the sale price is equal to or less than the depreciable cost. Plus with our service, there is no upfront cost because the fees are paid from the savings.
So why do so many commercial building owners do not know the benefits of Cost Segregation on their bottom line? The fact is that many Tax Preparers are not proficient in the area of Tax Credits or Tax Incentives, such as Cost Segregation Studies. This doesn’t mean that they are not proficient Tax Preparers. It just means that many of them focus on their core expertise. Similar to a Pharmaceutical Doctor’s core expertise is pharmaceutical medicine and doesn’t know much, if anything, of Homeopathic Medicine. That simply is not their focus. This is outside of their boundary of expertise and or knowledge. And being human, they fear what they know or understand little of. But, just as in the case with the Pharmaceutical Doctor-patient relationship, the doctor is lacking knowledge of natural remedies to offer his patient, in the relationship of the Tax Preparer-client, the lack of knowledge of Cost Segregation, and other Tax Incentives or Credits, by the Tax Preparer can be detrimental to the financial health of the client.
Cost Segregation Study Can Mean Instant Windfall
In truth, the IRS says this about Cost Seg. – “Buildings and structural components have substantially longer depreciable lives than personal property. Therefore, it is desirable for taxpayers to maximize personal property costs in order to accelerate depreciation deductions and, hence, reduce tax liability.” Cost Seg. Studies allows the developer and property owner, as well as the lessee, to accelerate the typical depreciable 49 year period to as little as 5 years by reclassifying real property to personal property. This saves them from having to pay taxes on 44 years or the remaining time of the building possession after the accelerated payment period, and creating possibly substantial cash flow to be either reinvested back into the business, give employee raises, or put towards the owner’s retirement. And with the average savings of $75,000 for every $1,000,000 in purchase or building cost could help set so many Tax Preparers apart from their competitors in the eyes of their clients.
A Tax Preparer or CPA that can offer the most savings and tax remedies for their client, either from within their office or by strategic partnership relations, wins in this tight competitive market. And a commercial building owner that has the confidence that their Tax Preparer knows not only how to reduce his or her taxes, but to aggressively discover ways to keep the most money in their pockets and grow their bottom line.