Commercial property owners, there's a powerful tax strategy you might be missing out on: a cost segregation study. A properly done study can unlock huge tax savings by letting you depreciate certain building components more quickly. Surprisingly, many property owners haven't explored this option.
You may be asking yourself, “If this tax strategy is so great, then why hasn’t my CPA brought it up already?”. There’s actually a very good reason for this. While your CPA is certainly a skilled financial adviser, they might not have the highly specialized engineering knowledge for the kind of analysis required in cost segregation studies.
Why CPAs Often Partner With Experts for Cost Segregation Studies
It's a Specialized Field
Cost segregation studies demand a unique combination of accounting, tax law and engineering expertise. While CPAs excel in the first two areas, the engineering component often requires collaboration with specialized construction experts. Accurate classification of building components for accelerated depreciation hinges on a deep understanding of construction principles.
In a cost segregation study, specialists meticulously examine your building's structure, electrical systems, plumbing, HVAC and interior finishes to pinpoint items qualifying for shorter depreciation timelines. CPAs are great at traditional accounting services and annual tax preparation, but most of them aren’t engineers—which is why they often prefer to collaborate with specialists.
It Takes Time and Resources
Cost segregation studies are detailed and time consuming. They often involve an on-site property inspection by an experienced engineer, a thorough review of construction plans and blueprints, and the meticulous preparation of a report outlining findings and supporting tax deductions. Most small and midsized CPA firms lack the resources and personnel readily available to dedicate to such in-depth studies. As such, they find it necessary to collaborate with outside experts.
Audits Are a Risk
The IRS has strict requirements and regulations governing cost segregation studies. Incorrectly classifying property components could potentially trigger audits and penalties. CPAs who are not themselves engineering experts may understandably hesitate to take on the added liability associated with conducting these studies. Instead, they might decide to work with a dedicated cost segregation specialist.
The Benefits of Working with a Cost Segregation Specialist
They Have the Right Team
Specialized cost segregation firms bring together teams of professionals with a distinct set of skills. Engineers assess your property's components, construction experts meticulously analyze blueprints and tax specialists ensure the study adheres to IRS regulations. This integrated approach maximizes your potential tax savings.
They've Done This Before
These firms specialize in cost segregation studies. They have streamlined processes, know the right questions to ask and can analyze your property efficiently. This translates to a smoother, less time-consuming experience for you.
Your CPA Can Do Their Thing
If managed internally, a cost segregation study could divert your CPA's attention from their core responsibilities. Partnering with a specialist keeps your CPA focused on what they do best, allowing you to concentrate on running your business with the confidence that your tax optimization is expertly handled.
Managing Risk: Why Working With Experts Matters
You might have heard that cost segregation studies increase audit risk. This is only partially true. Poorly conducted studies will certainly draw the IRS’s attention, but choosing a reputable cost segregation firm minimizes this risk and actually strengthens your position should an audit occur.
Here's how firms like Engineered Tax Services (ETS) offer an advantage:
- IRS-aligned practices: ETS meticulously adheres to IRS guidelines and understands the specific areas covered in the IRS Audit Techniques Guide for cost segregation studies. This focus on IRS-approved methodology reduces red flags and ensures strong audit defense.
- Multidisciplinary expertise: Our engineers and tax specialists have in-depth knowledge of IRS regulations and construction principles. This allows us to anticipate and proactively address potential IRS concerns, strengthening the validity of the study.
- Proven audit defense: We stand behind our work and defend studies at no extra cost. Our proven track record demonstrates our commitment to rigorous, IRS-compliant practices.
Conclusion
CPAs are invaluable partners in managing your business's financial health. However, for specialized strategies like cost segregation, it often pays to consult experts. Firms dedicated to cost segregation offer the resources and multidisciplinary knowledge required to maximize your benefits from this powerful tax strategy.
If you own commercial property, there's a high chance you're missing out on significant tax deductions. Don't leave money on the table! Contact ETS today for a free consultation to discover your potential savings.
