Cost Set Studies For Small Business

by Karen Stern

Thanks to the Tax Cuts and Jobs Act (TCJA), most tax rates will be lower in 2018. Businesses and individuals have an opportunity to take as many deductions in 2017 as possible, even if those deductions reverse in 2018. If your business recently acquired, constructed or substantially improved a building, a cost segregation study may be a great way to take advantage of these permanent tax savings.

Cost segregation, or cost seg, is an engineering-based approach to allocate building costs among the various building components to maximize depreciation expenses by classifying qualified assets into shorter lives. A cost seg study can help save you money by increasing depreciation deductions, reducing taxes and increasing cash flow.

You want to maximize your deductions in 2017, while tax rates are high. As the deductions turn in the future, rates will be lower, so it creates a permanent benefit.

• Do a cost seg study for 2017 additions. Any new assets you placed in service could be an opportunity for cost seg.

• Take a catch-up adjustment. For pre-2017 additions, a cost seg study can be performed and a catch-up adjustment can be taken on your 2017 tax return.

• Think about property to be sold in a few years. If you recently decided not to perform a cost seg study because you didn’t think you were going to hold the property long enough to justify the cost of the study, the benefit of the permanent tax rate plan may make it worth revisiting.

• Certain Q4 2017 acquisitions may be eligible for 100 percent bonus depreciation. Anything you placed in service during Q4 2017, especially anything you acquired (used property is now eligible), might be eligible for 100 percent bonus depreciation. A cost seg study will maximize the assets eligible for bonus depreciation.

A cost seg study will take some effort, but it will likely be worth the time and effort.

Karen Stern, CPA, (kstern@bswllc.com), partner in charge, Brown Smith Wallace Entrepreneurial Services Group, provides tax and accounting services for companies ranging from start-ups to $20 million in revenue.