In the demanding world of logistics, where every cent counts, cash flow optimization is crucial. Sure, it's essential to trim expenses and enhance efficiency, but have you ever considered that a fresh take on your tax strategy could also lead to serious savings?
This is where cost segregation enters the picture. This blog post is designed to guide you through one of the most effective logistics tax strategies: cost segregation. We’ll examine how it operates, the advantages it offers and the ways you can put it into practice to amplify your profits.
How Cost Segregation Works for Logistics
Among various logistics tax strategies, cost segregation stands out for its immediate impact on cash flow. Logistic companies certainly aren’t strangers to specialized equipment—conveyor belts, racks, forklifts and more are considered commonplace. Under normal depreciation rules, HVAC equipment cooling this specialized machinery as well as electrical components required to run the specialized equipment are lumped in with the building itself and depreciated over 39 years.
Alternatively, cost segregation allows companies to take a much smarter approach. This IRS-approved tax strategy involves separating out various types of personal property (including outlets, safety switches and any cranes attached to the structure) and reclassifying them into shorter depreciation schedules to accelerate the pace of deductions.
Logistics firms are ideal candidates for cost segregation because their facilities contain plenty of heavy equipment that can be reclassified. In addition, things like flooring, wiring and lighting can often be shifted to shorter class lives. Every reclassified asset leads to accelerated tax savings, ultimately putting more money in your pockets.
When evaluating logistics tax strategies, the benefits of cost segregation are manifold, including:
- Immediate increase in cash flow due to reduced tax liability
- Potential to catch up on missed depreciation deductions from prior years
- Improved accuracy in financial reporting
Cost Segregation in Action
To illustrate the real-world impact of cost segregation, let's examine the example of a logistics company that built a new 243,586 square foot distribution center in New Hampshire for a total cost of $37 million.
Under normal depreciation rules (typically referred to as straight-line depreciation), the building would have depreciated steadily over a period 39 years. Instead, this company hired ETS to conduct a cost segregation study, which allowed them to reclassify many assets into shorter schedules.
Thanks to accelerated depreciation, the company enjoyed a first-year tax savings of $16.7 million, which is certainly no small amount of money! That's cash the company can use to reinvest in operations, hire employees, acquire new warehouse space or grow their business however else they see fit.
This case study highlights how effective cost segregation can be as part of comprehensive logistics tax strategies. With the right analysis, logistics companies can uncover major tax savings from their biggest capital investments. This improves cash flow and provides a competitive edge.
Making Cost Segregation Work for You
So, how can logistics companies implement cost segregation as one of their cornerstone logistics tax strategies? One excellent option is to partner with the pros at Engineered Tax Services. We have extensive experience in the logistics industry, and our engineers are well qualified to conduct detailed on-site surveys to identify assets for accelerated depreciation.
The tax professionals at ETS make sure every reclassification follows all applicable IRS guidelines. Our documentation will withstand any potential audit.
In essence, ETS serves as an extension of your tax department. Our end-to-end cost segregation service takes advantage of every available tax benefit while minimizing disruption to your business. We can even analyze prior capital investments to recapture savings from previous years!
Get Started Today
Cost segregation is among the logistics tax strategies that can provide significant tax and cash flow benefits, but the savings won’t simply appear on their own. The key is to work with specialists who know how to maximize opportunities.
That's where ETS steps in. Our team of engineers and tax experts can conduct a complimentary cost segregation analysis for your facilities to identify potential tax savings you may be missing. We’ll outline a custom cost segregation strategy tailored to your buildings, equipment and operations.
Reach out to ETS today for your free analysis, and discover what cost segregation could do for your bottom line!