Cost Segregation - Tax Deductions
Tax Rule No.1: Don’t cheat the IRS. But that doesn’t mean you should cheat yourself. Take every legal tax deduction you can.
In addition to the numerous tax deductions the Internal Revenue Service allows, research indicates that most U.S. taxpayers do not claim all deductions to which they are entitled. Some of the tax deductions business owners can claim fall under categories such as charitable contributions/donation deductions, medical and dental deductions, moving expense deductions, deducting job costs, travel and entertainment expense deductions, and casualty and theft losses, depreciation and involuntary conversion deductions.
Most people are not aware of all business deductions and miss out on various claims. To this end, it is important to understand the theme for deductions for businesses. When considering whether an expense is a deduction, you should ask yourself the following:
1. Did it occur as part of my small business? 2. Was it an ordinary expense associated with my business? 3. Was it a necessary expense?
Cost segregation involves separating up to 135 components of real estate that depreciates faster than the building itself. Taxpayers can depreciate many components of real estate using a five-, seven-, or 15-year recovery period. Within permissible bounds, there is a huge tax-savings opportunity for valuing this property accurately. This category includes items such as carpeting, certain fixtures, window treatments, site improvements and some wall coverings.
Cost segregation increases tax deductions by apportioning about 20% to 40% of the total cost basis to short-life property. Short-life property depreciates over a shorter life period and provides a higher level of tax deductions annually during the first 15 years of ownership. Most business owners increase depreciation by 50% to 75% by obtaining a CSS analysis.
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