Additionally, many states do not recognize “flow through” status so that while no Federal income tax is due, some state and local taxes must be paid. This requirement can be quite onerous in times of economic distress, so getting exemptions in place before trouble starts is critical. Talk to any purchasing professional and ask them if 6% to 10% is important to them. That alone will give business owners a good idea of the value of either exemptions and/or deductions. Keeping in compliance is very critical. Credit grantors are very concerned about these items. 

I have had to deal with several issues that were worth $137 for companies with $2 to $5 billion in US receipts. It held up funding of between $600,000,000 and $2,500,000,000 for up to two weeks. States have spent billions of dollars in getting up to date software used to discover taxpayers who are non compliant (their term is much stronger). Failure to maintain an up to date tax calendars are failure to respond  promptly to demands can poison the atmosphere. 

It is well to remember that you have to deal with these people for as long as you stay in business in their jurisdiction. Hostile audits can severely stress a smaller organization. I’ll be happy to estimate the savings beforehand and compare them after the returns are filed.

Cost Segregation is a process of analyzing fixed asset for their proper life. The shorter the life that a taxpayer can prove is legally appropriate means that the sooner the cost of the property is recovered. Buildings have a tax life of between 28.5 and 39.5 years. Taxpayers using these lives will get a very slow cost recovery. Cost Segregation studies often uncover opportunities to claim lives of between 7 and 20 years. This is a significant cost savings and can only be utilized by a study done according to the methods outlined in the IRS Cost segregation manual. Among other things, this manual requires the services of engineers and architects to verify the shorter lives. If you “do it at home”, you application will be rejected.

There are other benefits of a Cost Segregation study. The largest one is looking for “ghost” assets or duplicate assets. The discovery of these errors in your depreciation/property schedules can be fixed, sometimes in an amended property tax return. These benefits are multi-year. In my experience, at one facility only, the actual assets amounted to about $23 million, but the reported assets were about $56 million. If we assumed a commercial millage of, say 55 mills and a tax base of 50% of asset cost, the taxpayer faced a tax liability on the “ghost assets” of approximately $1.815 million. Had I not discovered this,  the “unnecessary” payment would have gone on for several decades.