Another 10/15 IRS tax deadline is upon us and like every year, way too many taxpayers are still scrambling to find ways to cut their taxes. Proper tax planning in advance avoids this "wait to the last minute" mentality.
So why wait?
Procrastination is normal for most but it shouldn't enter into the realm of tax planning. While there are some "rare birds" out there who don't mind overpaying their taxes, most taxpayers tell their accountant, enrolled agent or bookkeeper to find as many deductions as they can. Why? Obviously to pay as little in taxes as they legally can! Right! I mean, who calls their CPA and says, "hey CPA, please help me pay as much in federal income taxes as you can possibly find!"? Do you tell your EA, hey, I'm not paying enough taxes, can you help me pay more? Of course, this is absurd.
Listen, here's the point. 10/15 doesn't have to be the date you put off planning for just because you know that's the last day you can write that darn check to the IRS. Get with your CPA, EA, accountant, bookkeeper, tax attorney - heck, your mother or whoever you use to do your taxes - and plan now for 2018. NOW! In fact, here's a tip for those of you who own commercial real estate or residential rental property.
Mitigate your IRS taxes!
There are parts of your building or rental house that are called "tangible personal property" under the Internal Revenue Code. It is under IRS Sec. 1245 of the IRC. Some of these parts, or assets, are building components like carpet, vinyl flooring, cabinetry, millwork, casework, decorative lighting, internet or phone cabling, security system, process-related electrical-mechanical-plumbing systems, and much more. Outside the building are land improvements under IRS IRC Sec. 1250. They include landscaping, parking lot or driveway, sidewalks, drainage and collection basins, fencing, signage, monuments, and more.
These assets and more qualify for 5-, 7- and 15-year depreciation periods. These assets are always set up on 39.5 years for commercial and 27.5 years for residential. The reason is simple. The accounting industry as a whole are not architects or engineers or even builders. That is important to note because the IRS says "...it requires those who have knowledge of, or training in, construction and/or construction techniques." How many CPAs, EAs, bookkeepers, or tax attorneys do you know who is also an architect or engineer?
Can I use my CPA or EA?
Glad you asked! Since the IRS says you should use architects or engineers with special knowledge, do so! Search for the best to do this specialized work. You are dealing with the IRS, an entity with almost unlimited power. Do you want to risk using unqualified people to do work for you that goes to the IRS? Do you want to risk using your CPA or EA who are not qualified, especially when the IRS Chief Counsel wrote a memo saying so?
Who should I use per the IRS?
Forensic cost segregation engineers are the only ones who are sufficiently qualified. The reason is simple. They always use all 32 primary divisions of the building code. Why is that important? Think about it. If you have a jigsaw puzzle with a thousand pieces but only use 800 or so to build the puzzle, will it look like the picture on the box? Of course not! That is why you want to use a forensic cost segregation engineer. They don't leave any puzzle pieces on the table. They take every single little building component down to the nuts, bolts and screws.
You may ask yourself, but won't that cost too much? Will it make financial sense to use such highly professional people? In a word - yes. While forensic engineers are more expensive, they will always return tens to hundreds of times their fee in tax savings. Don't settle for less than the best. Remember, you are dealing with the IRS. Don't scrimp or cut corners.
Get started today for 2018! The IRS hopes you don't!