I’m a woman who’s a restaurant owner. Last year I purchased a Japanese restaurant in, of all places, Milwaukee, Wisconsin. I really wanted to renovate it, but I was concerned about the construction cost. With a startup business, how could I afford the renovations?
Then last year, I was reading Forbes online when I came across an article entitled
Decreasing Your Tax Burden With A Cost Segregation Study. It really opened my eyes to what I could be missing out on.
What I Didn't Know About This Accounting Method
You see, cost segregation is an accounting method that’s recognizes your property isn’t just a single entity, but made up of a lot of parts, known as subcomponents, like your lighting system and heating and air conditioning system. As time goes on, these wear out and lose value—they depreciate. A cost segregation study breaks down how much your subcomponents are expected to last into 5-, 7- or 15-year categories, so you can calculate how much in taxes you’re entitled to write off.
According to this article, a cost segregation study could not only save me a lot in taxes—it could even fund those renovations I wanted done.
The next night I had dinner with a friend of mine who’s a real estate attorney. This stuff about cost seg sounded like something out of Harry Potter, like magic—the secret tax technique that will solve all my problems! I asked her about whether the article I read in Forbes was accurate. I even showed her a printout.
The information here is totally legit, she said.
You could save a bundle in taxes right off the bat. And yes, you could even pay to fix up the restaurant.
That’s amazing. This is like a dream come true. I know I can attract a lot more business if the place is spruced up.
Keiko, you just bought the place this year, is that right?
Perfect. It’s always best to conduct a cost seg study on a property the year you purchase it. And there’s another benefit to having a cost seg study done.” (Sometimes it really helps to have a friend who’s a real estate attorney.) “Because a cost seg study can recalculate the replacement costs for your insurance carrier, you might be able to save on insurance premium costs and property tax appeals.
How do I get started?
I’ll put you in touch with a specialty tax practice I’ve worked with. They’re called Engineered Tax Services, ETS. They have qualified engineers on staff who know how to undertake cost seg studies.
They Found Major Tax Benefits For Me
ETS did a free feasibility study that indicated I could reap major tax benefits. After I gave them the information they wanted, they conducted an onsite inspection. The result? I paid $840,000 to buy my restaurant specializing in Hokkaido cuisine—but thanks to the cost seg study, I was awarded first-year bonus depreciation of $427,200. Later I learned that without the study, I only would have received approximately $21,500. My study netted me $425,700 extra!
What did I do with my $427,200 tax savings? I fixed up the place and installed new computer systems. Now there’s a new kitchen, the dining room has been enlarged, the Wi-Fi is flawless, and guests can order from a tablet computer from the convenience of their tables!
Thanks to an investment in a cost segregation study, I was able to help my business reach its full potential. And it wasn’t magic! It was accounting.