Clients with $500,000 or more of capitalized improvements, old assets on the books are prime prospects for tax savings.
As your clients’ trusted advisor, you are constantly searching for opportunities to lower your clients’ tax bills while keeping them in compliance with IRS Regulations.
A fixed asset review is an ideal way to accomplish all of the above. We discussed the benefits of a mid-year fixed asset review in a previous post. But how do you identify those clients that represent the greatest opportunities to realize tax savings while complying with 263(a)? Here are five questions you should be asking.
- Does the client own properties that require frequent or expensive repairs? Hotels, restaurants, commercial office buildings and retail establishments all must keep the property in good condition to attract clients and customers. Manufacturing and distribution facilities require expensive repairs to keep a unit of property in efficient operating condition. These are exactly the kinds of clients and prospects that have costs that are likely to qualify as deductible repairs.
- Does the client have more than $500,000 of capitalized improvements on the books? A commercial property owner can look back all the way to 1987 for capitalized costs so it’s not hard to reach that number. By proactively reviewing previously capitalized costs, you can demonstrate your value by identifying costs that now qualify as current tax deductions. And by performing that review now, you can present your client with the option of taking those deductions on the 2013 tax return or saving them to offset 2014 taxable income.
- Is the client depreciating old windows or roofs? The proposed regulations allow taxpayers to claim a tax deduction for the retirement of structural components of buildings—or any portion of a structural component. The clock is ticking on your ability to make this “late partial disposition election” for assets disposed of in prior years. The election is currently available only for the 2013 tax year. While the final regulations (which are yet to be released) are expected to extend the election to 2014, cover your bases by cleaning up property owners’ depreciation records now.
- Could your client benefit from the de minimis safe harbor? This safe harbor allows taxpayers to write off any amounts paid to acquire, produce or improve tangible property that are less than a certain threshold. For taxpayers that have an Applicable Financial Statement (AFS) and follow written accounting procedures, that threshold is $5,000 per item or invoice; for taxpayers without an AFS, the threshold is $500 per item or invoice. Because the final regs removed the ceiling on this election, your clients and prospects now have a significantly greater opportunity to shield these tax deductions from IRS scrutiny.
- Has the client purchased, constructed or renovated a building with a cost basis of at least $1 million? Compliance with the tangible property regulations is mandatory, but if you can find opportunities to accelerate depreciation deductions at the same time utilizing a cost segregation study—that’s just gravy!
If you’re looking for ways to increase your clients’ cash flow while putting them into compliance with 263(a), CSP360 can help. Sign up to take a Deep Dive and find out how.