“The United States has a system of taxation by confession.”
- Hugo Black

Introduction:

Cost segregation is a tax planning strategy that can help businesses reduce their overall tax burden by accelerating depreciation deductions on certain assets. It involves separating out specific components of a building or property that have a shorter useful life than the building itself, and assigning them a shorter depreciation schedule.

For example, a building may have components such as lighting, carpeting, and HVAC systems that can be depreciated over a shorter period of time than the building structure itself. By reclassifying these assets as shorter-lived, the business can accelerate their depreciation deductions and reduce their tax liability.

Who can benefit?

Industries that can benefit from cost segregation studies include real estate, manufacturing, healthcare, hospitality, and retail. Any business that owns or leases commercial property, or has made significant improvements to their property, may be eligible for cost segregation.

Why is it missed?

One reason cost segregation is often overlooked by business owners is that it typically falls outside the normal scope of their CPA or accounting firm. Many accountants are not familiar with the intricacies of cost segregation and may not have the expertise to properly execute a cost segregation study.

Why it's so powerful...

However, the benefits of cost segregation can be significant. By reducing their tax liability, businesses can increase their cash flow and reinvest those savings back into their business. For example, a business that saves $100,000 in taxes through a cost segregation study can use that money to purchase new equipment, hire additional staff, or expand their operations.

In conclusion, cost segregation is a powerful tax planning strategy that can help businesses reduce their overall tax burden and add profit back into their business. By properly executing a cost segregation study, businesses can accelerate their depreciation deductions and generate significant savings. Business owners should consider working with a qualified cost segregation specialist to ensure that they are taking full advantage of this valuable tax planning tool.