The road to profitability in the gas station industry is filled with challenges, but cost segregation may just be the hidden fuel you need to drive your growth. This powerful tax strategy, while complex, offers the potential for significant tax savings, elevating your bottom line and providing extra funds for reinvestment.
This blog post will take you on a deep dive into the world of cost segregation, underscoring its significance for gas station operators and laying out steps to seamlessly incorporate it into your business strategy.
The Pertinence of Cost Segregation to Gas Stations
Gas stations are capital-heavy businesses with substantial investments in both real property (like the building itself) and personal property (like equipment and machinery). The U.S. tax code recognizes this unique blend of assets and the business model of gas stations. According to IRS Publication 946, retail properties that sell gasoline, such as gas station convenience stores, can be depreciated over a 15-year period under the Modified Accelerated Cost Recovery System (MACRS).
This means that not only can the entire structure, including the retail building, be depreciated over a 15-year straight-line period, but certain specific assets integral to the operation of a gas station can also follow this accelerated depreciation schedule. This includes the underground fuel storage tanks, pump islands, canopy, special electrical for pump operation and signage.
The reclassification to a shorter depreciation life can lead to a more accelerated depreciation schedule and significant tax savings. This underscores the significance of cost segregation for gas station owners.
Every gas station is unique, and the potential for cost segregation benefits depends on a variety of factors. Therefore, it's crucial to work with a cost segregation specialist or tax professional to correctly identify and classify assets, ensuring compliance with IRS guidelines.
Putting Cost Segregation into Action for Your Gas Station
Implementing cost segregation for your gas station purchase or development project requires careful planning and expertise. Here are some key steps:
- Consult an accountant or tax attorney familiar with cost segregation (such as those at ETS). They can advise you on the feasibility and potential tax benefits specific to your project. Working with an experienced professional is crucial for staying compliant.
- Hire a qualified engineer to perform an in-depth cost segregation study. This will identify all assets eligible for reclassification. Look for an engineer experienced in inspecting gas stations.
- Provide the engineer with the access and documentation needed to thoroughly assess all systems, equipment, construction, etc. The more accurate the study, the greater the potential tax benefits.
- Once completed, have your accountant use the study's data to calculate your increased depreciation deductions and integrate them into your tax planning.
- File your tax returns leveraging the optimized depreciation schedules. Maintain detailed records in case of an audit.
Correct implementation is key to realizing the rewards of cost segregation while avoiding unnecessary risks. By working closely with knowledgeable tax and engineering professionals, gas station owners can unlock major tax savings that can then be utilized to upgrade facilities, lower operating expenses and drive greater profits.
The Role of Engineered Tax Services
At Engineered Tax Services, our team of tax attorneys, engineers and specialists focuses specifically on cost segregation and related tax strategies. With our multidisciplinary approach, we conduct comprehensive cost segregation studies that align with IRS guidelines and are fully audit defensible.
Over the years, we've worked with many business owners, including those in the gas station industry, to help them legally minimize their tax liability through accelerated depreciation. We know every property and situation is different, so we can't guarantee specific results. However, our experience conducting strategic cost segregation studies equips us to fully leverage the potential tax benefits for each unique case.
If you’re a gas station owner looking to take advantage of this valuable opportunity, we encourage you to contact us today. Our tax pros can evaluate your specific situation and options while ensuring full compliance.
