Most dentists are great at their profession. Virtually all, however, are paying more income taxes than they legally should. While the mention of the name, “Internal Revenue Service,” instills fear, there is no need to fear them. Embrace them as your ally, and you will find there are actually some tax codes that work in your favor. Let’s explore one of the most under-utilized and recent one of these, Modified Accelerated Cost Recovery, generally referred to as “cost segregation.”
Cost segregation is quite simply the identification of assets that meet IRS guidelines for accelerated depreciation in your dentist office. Most dentists’ offices have at least 35% of the interior build-out that qualifies for 5-year depreciation. Take a look at your depreciation schedule; what does it show… 39.5 years? 31 years? 27.5 years 15 years?
All dental offices are full of building components that qualify for 5-year depreciation? Virtually 100% of what you see qualifies!
Why let the IRS hold on to your money when it’s yours? The IRS doesn’t pay you interest on over-paid income taxes, but they sure charge you interest if you under-pay, don’t they!?
What we do is simple, though the process of cost segregation is highly technical, requiring architectural and engineering professionals. In fact, the IRS Chief Counsel actually said, “…cost segregation, for it to be properly applied, had to involve those with competencies in architecture, engineering, or construction and/or construction techniques, in order for personal property assets to be accurately identified and segregated.” Is your CPA also an architect or engineer? Most likely not.
So, how does cost segregation actually affect me and my dentist office? Good question Did you pull your depreciation schedule to see how your assets are currently being depreciated? Please do! However, let’s be conservative and say that 30% of the cost of your build-out is all that qualifies for 5-year depreciation, and furthermore that you spent $150,000 to complete your dentist office. Well, 30% of $150,000 is $45,000 in depreciation. If you are in the maximum tax bracket, that means you have about $16,000 in over-paid federal income taxes, if you have been in your building or leasehold space for 5 years. You are due a $16,000 income tax refund! If you own your own commercial office space, your refund may be significantly larger. If you own other commercial property, including rental houses, you most likely have refunds coming there as well.
It doesn’t matter if you have been there longer or for a shorter period of time, what matters is that you are due a refund, or tax credit if you choose. Either way, the IRS is holding your money when it should be in your pocket! Time-value of money – think about it – a dollar is always worth more today than it is tomorrow!
Knowledge is power when you apply it. Get with your local forensic cost segregation engineering firm today! It’s your money, why wait!