Our Guest Blog post, Answering Your Tax Questions About Cost Segregation, is courtesy of Yuko Tsuchida, CPA, MBA is founder of Hito, LLC, a comprehensive tax advisory and consultancy based in Newport Beach, CA
Yuko Tsuchida, Founder Hito, LLC
Reminder that the new, individual Tax Day is in two short weeks: Monday, May 17 this year. So let’s answer your questions!
What is Cost Segregation?
Cost segregation is a tax consulting service that uses established IRS depreciation rates to legally save you money on your taxes. Generally, the tax laws regarding depreciation on non-residential and residential property require that the facility is depreciated at a 39 year or 27.5 year rate, respectively. However, the tax laws do allow for components of a property to be depreciated at an accelerated rate.
For example, appliances, fixtures, and certain mechanical, electrical, and plumbing components of a facility are subject to more favorable depreciation rules. This is where a cost segregation study can help. A cost segregation study, simply put, is when a tax professional analyzes a building’s components to accelerate depreciable lives. Depending on the facility, this can lead to hundreds of thousands to millions of dollars in tax savings.
Who Can Benefit?
For-profit companies that have constructed, purchased, expanded, or remodeled any kind of real estate can benefit greatly from having a cost segregation done. Although properties with a greater basis can potentially garner higher savings, it is still worth having a specialized tax professional review your depreciation schedule and related forms (general contractor invoices, estimated schedule of construction costs, etc.) to determine if there are missed opportunities that you can take advantage of.
Could You Do This Yourself?
If you want to reap the maximum depreciation benefit from a cost segregation study while ensuring that the study can withstand audit, the IRS recommends a tax and engineering based study. This requires a professional. While you might be able to identify certain depreciable assets on your own, such as specialty equipment that your company installed and have the invoice for, a professional will be able to perform a much more detailed study and identify more opportunities for benefit.
A professional will also make sure that your study adheres to federal regulations, as they will have lots of experience studying and identifying qualifying features as well as building a comprehensive understanding of tax taw. In short, tax law is very complicated and cost segregation is an especially specialized arena, so regardless of your plans it’s well worth it to get the help of a specialist and maximize the benefit.
What’s it Worth to My Business?
The accelerated depreciation savings of a cost segregation can increase your cash flow by reducing your current income tax liability. Paying less in taxes will leave you with more money left at the end of the year to re-invest back into your business. Particularly right now, when small to midsize businesses in many industries are looking for ways to save money, there has been no better time to focus on implementing a tax strategy, especially if you’re concerned you’re missing out on an opportunity for which you qualify.
Where Can I Find a Cost Segregation Specialist?
Contact Hito, LLC specializing in cost segregation. Our practice leader Eunice Salinas has years of experience saving her clients millions with her expertise. Book a complimentary consultation with her here or send her an email at email@example.com.
More about Yuko Tsuchida:
Since 2006, Yuko has helped clients, including Fortune 500 companies, save over $100 million in tax incentives and credits. Yuko’s background includes over 10 years of tax consulting experience advising multinational corporations on value-added tax strategies. In October 2017, Yuko founded Hito, LLC to provide value added tax consulting services focusing on tax incentives and credits. Yuko describes Hito’s differentiating strategy: “We listen and engage with our clients in order to thoroughly understand their businesses’ needs. Thus, enabling them to grow their businesses by minimizing taxes and freeing capital.”