Don’t wait to find tax savings opportunities that will delight your commercial property owning client.
With the 2013 tax season fresh in your memory—or ongoing, as you continue to prepare extended returns—you may not want to think about the 2014 tax season just yet.
But when it comes to finding opportunities to get tax savings or advantages from the new tangible property regulations, CPAs who wait until next spring to review their clients’ fixed asset accounting methods could find their client base poached by competitors who beat them to the punch.
Any time you invest now in 263(a) tax planning will pay big dividends when spring rolls around in the form a smoother, more efficient process for all involved, and even more importantly, the potential for a HUGE check from Uncle Sam for your client.
Now is the time to conduct a mid-year review of your property-owning clients’ fixed asset and depreciation schedules. By investing the time in that review now, you will:
- Clean up depreciation and fixed asset accounts by adopting new accounting methods and procedures.
- Identify previously capitalized costs that can now be classified as repairs and eligible to be deducted
- Make sure clients are following the correct accounting methods and recording fixed assets in accordance with the new regulations and their own capitalization policy—and hence are able to support those current deductions.
- Present your clients with the opportunity to realize those tax savings on either the extended 2013 return or the 2014 tax return.
Given the new unit of property definitions contained in the tangible property rules, your commercial real estate owning clients are especially likely to require a number of accounting method changes. But these regulations will affect almost every client in one way or another; in fact, Treasury is expecting at least one Form 3115 and at least one election with every 2014 tax return.
Here are 4 steps you can take to facilitate this invaluable review and make your clients happy now.
1. Stratify your clients between small, medium and large.
Whereas your smaller clients might own one commercial property that requires a single accounting method change and an election or two, the large clients are those with multiple commercial properties (such as hotel or office complex owners) who will require a full-blown multi-phase work plan that addresses each area of the regulations.
2. Start with the big fish.
These are the clients who represent the greatest opportunities to realize tax savings—and demonstrate your value. Did a hotel owner replace HVAC units in multiple properties this spring? Did a manufacturer replace expensive batteries in multiple forklifts? Did the owner of an office complex replace a roof? These big-ticket items, which many commercial property owners capitalized in the past, now are likely to qualify as deductible repairs.
3. Create templates and checklists to facilitate compliance.
This is the step that is going to streamline the time you spend on your smaller and medium-sized clients so that you can invest more time with the big fish. There are likely a number of method changes and elections that are applicable to almost all of your clients. For example, most clients will require accounting method changes due to overcapitalization, and many will require method changes for materials and supplies. Or, perhaps you have a number of clients who will adopt the safe harbor for routine maintenance. Prepare these templates now, and you will be significantly closer to identifying tax-saving opportunities once you receive each client’s year-to-date fixed asset schedule.
4. Turbocharge tax savings.
Identifying deductible repairs that were previously capitalized is just the tip of the iceberg when it comes to a commercial property owner’s potential tax savings. By performing a cost segregation study to assign costs to the major structural component and each of the newly defined building systems, those clients could uncover a plethora of opportunities to accelerate depreciation.
Tapping into the engineering expertise of a qualified cost segregation/263(a) specialists is critical to identify costs that kept the building in normal operating condition (as opposed to those costs that improved the UOP). A review of past years’ cost segregation studies may also reveal a number of opportunities to take current deductions for retired assets, including dispositions of leasehold improvement property.
When it comes to uncovering tax-saving opportunities by reviewing your clients’ fixed asset accounting methods, it’s best not to wait until Uncle Sam is breathing down your neck. If you are looking for guidance on conducting a mid-year fixed asset review, contact us to find out how we can help you grow your commercial real estate niche through our CPA Partnership Program.