|
Fixed Assets Schedules offer Latent Tax Cuts
Fixed asset schedules offer an unrecognized potential for tax reduction.
Tax deductions are wonderful but horribly complicated. No single person can truthfully say they know and understand all issues related to tax deductions (for U.S. federal income taxes). Even simple issues such as what expenditures are “ordinary and necessary” are subjective (Was a one-week trip to London to see a relatively small client (for 2 hours) reasonable and necessary?)
Harvesting tax deductions from your fix asset schedule can be lucrative. Yes, it can also be time consuming and tedious, but the resultant tax cuts can be substantial. Three of the most profitable areas for increasing tax deductions are: 1) removing items which should not have been capitalized, 2) removing items which have been sold, given away, or stolen, and 3) correcting the depreciation life for items which have an excessive life. Periodic house-cleaning can help to cut your federal income taxes.
There are usually items in fixed asset listings which should have been claimed as a tax deduction instead of being capitalized. Two of the most prevalent items are maintenance/repair and operating expenses. Honorable people could reasonably disagree whether a repair was maintenance (a current year expense or tax deduction) or a capital expenditure. The technical criteria is whether it extends the life of the component or asset. For example, a roof on a 100,000 square foot building has one leak which cost $500 to repair. This is clearly a repair. However, what if you spent $10,000 to fix leaks (versus replacing the roof now) and the roofer told you the entire roof will have to be replaced in 3 years even after fixing numerous leaks? Tax advisors can help clarify items in gray tax areas.
Operating expenses are sometimes inadvertently capitalized. This could be materials, supplies, labor, utilities, or other items. Your initial response might be “that couldn’t happen here.” Our experience is human error due to judgement, limited knowledge or coding errors usually cause some errors in this area. Substantial tax cuts can result from a review of capitalized items.
Claiming a tax deduction for items you no longer own both reduces your federal income taxes and makes your records more accurate. Most companies do not systematically link dispositions of modest cost items with their fixed asset listing. This is particularly true when items are lost, discarded or stolen.
Precisely correcting a fixed asset listing is sometimes impossible from a practical perspective. Nor would it be financially feasible to exactly revise the fixed asset listing (either in terms of removing items which no longer exist or overall). However, there are several options other than 100% sampling. Using the Pareto principle, it is possible to focus on the 20% of the record which contain 80% of the value. Another option is using the statistical sampling for some (or all) categories to sharply improve the accuracy of the fixed asset listing (and simultaneously generate meaningful tax deductions). A third option for generating additional tax deductions is to scour the fix asset listing for items which have an excessive depreciation life. One of the challenges in this area (and for the other options) is identifying abbreviations. For example, is it clear that 20 tn prs stands for 20-ton press? The abbreviations often vary from person to person. Even the person writing the abbreviated format may not be able to recall the item in 3-6 months. Focusing on the larger items merits consideration. In some cases, it is worthwhile to review all items.
Reviewing your fixed asset listing to increase tax deductions reduces federal income taxes and improves the accuracy of your records. While reducing federal income taxes is always in fashion, improving the accuracy of your records is important for public companies due to Sarbanes Oxley.
Click here for a FREE preliminary analysis of income tax savings for your property.
Fixed asset audits produce tax deductions and reduce federal income taxes across the country and in every size market. Below are just a few examples of cities where fixed asset audits generate meaningful tax deductions.
City:
- Denver, CO
- Memphis, TN
- Las Vegas, NV
- Tampa, FL
- Dallas/Ft. Worth, TX
- New York, NY
- Phoenix, AZ
- Houston, TX
- Baltimore, MD
- Boston, MA
- Buffalo, NY
- Milwaukee, WI
- Knoxville, TN
- Portland, OR
- Detroit, MI
- San Diego, CA
- Sacramento, CA
- Lakeland, FL
- Springfield, MA
- Virginia Beach, VA
- Poughkeepsie, NY
- Sarasota, FL
- Chicago, IL
- Allentown, PA
- Ft. Lauderdale, FL
- Columbia, SC
- Colorado Springs, CO
- Raleigh, NC
- Albuquerque, NM
- Scranton, PA
Almost every industry, including the following, can generate cost-efficient tax deductions by performing a fixed asset audit.
Industry:
- Frozen food manufacturing
- Truck transportation
- Paper manufacturing
- Chemical manufacturing
- Food and beverage stores
- Wood product manufacturing
- Transportation equipment manufacturing
- Health care facilities
- Printing activities
- Publishers
|
