Potential Tax Savings Opportunities
Nelsonian Fundamentals: There are two ways to increase “profits”.
Either: 1. increase your incomes; or,
2. decrease your expenses.
Both will increase the “Bottom Line”.
Both of the following “opportunities” can improve your profit margin right now by decreasing your expenses… the expense of taxes paid to the government.
Do I have your undivided attention? Read on.
NOTICE: THIS IS NOT INTENDED TO BE “TAX COUNSEL”.
This is intended to be a “heads up” for those who own real estate.
Item One: NEW FEDERAL LAW as of 11/6/09
Great Tax Relief, if your business has LOST MONEY in 2008 and / or 2009.
The “Worker, Homeownership, and Business Assistance Act of 2009″
Five Year “NOL” (Net Operating Loss) Carry-Back
Who Qualifies:
1. Owners of a small business with gross receipts of less than $15 million per annum in 2008 and/or 2009; or,
2. Tax Payers who do not qualify may use it in either 2008 or 2009 (but not both years)
Summary of Opportunity: If you own an eligible small business that:
- grosses less than $15,000,000 in 2008 or 2009, and
- had business losses
then, you may amend your tax return to carry those losses back for up to five (5) years and thus reduce your taxable income in those years by offsetting those more profitable (and more taxable) years with current business tax losses.
How About the “Alternative Minimum Tax” (AMT) Tax payer? This new law suspends the 90% limitation on the use of a NOL for the AMT Tax Payer. Pretty interesting for once for us AMT tax payers!
Nelsonian Theory: With Your CPA’s Blessing, Maximizing 2009 Expenditures:
- One way to legally increase your 2009 “tax write-offs” is to increase your IRC Section 179 Expenditures (new computers, business oriented equipments, etc…. ask your real estate oriented or business oriented CPA to make sure that your perceived “expenditure” qualifies). This can really increase your qualified expenses while acquiring needed equipment to become more productive.
- Another whopper of a legitimate tax shelter expense increase is to convert to the Cost Segregation depreciation method. Unfortunately, the conversion to this method is not quick. It takes a detailed Cost Segregation Study to get started, and that doesn’t happen over night or at a small expense…. See “Item Two” below for addition information on that topic.
To Learn More: Consult your business oriented CPA. This could be a whopper for those who did very well before the Recession hit, and are now not having nearly as much fun with accumulating business losses.
Item Two: Cost Segregation Depreciation
Who Can Use It: Any owner of real estate who uses that real estate in a manner that qualifies for a depreciation allowance:
- an investment property owner who owns a property with building improvements; or,
- a business owner who occupies the building that they own as a productive asset in your trade or business.
How to Get On Board: It takes a Cost Segregation Study to start to receive the benefits. There are a number of firms who specialize in preparing the necessary Cost Segregation Report. Those firms typically consist of engineers and CPA’s. For a not-very-small fee, they perform a Cost Segregation evaluation of the buildings. The study identifies the structural components and their relative “cost”.
How It Is Used: Once the study is completed, each identified component is evaluated to identify its specific value and a specific depreciation schedule. Each year, the CPA will calculate the annual depreciation allowance that the owner is allowed to claim.
The Result: The owner/tax payer can claim a substantially larger amount of depreciation allowance each year…. thus offsetting a like amount of otherwise taxable income generated by that property or that business (in the case of an owner-occupant).
Heard on the Street: A broker friend of mine stated that it saved one of his clients $100,000 of real money in the first year of application. That tax savings came in a refund from IRS on taxes paid in former years on income generated by that property.
Is It For Everyone? I don’t know. However, the initial cost of establishing the Cost Segregation Study is probably not “cost effective” unless your property improvements exceed $1,000,000 in value.
How Much of This Should I Rely Upon? Very little. I am just trying to give you a “heads-up” that might save you big bucks.
How Can I Get Good Advice? Talk to your real estate oriented CPA.
Don’t Have A Real Estate Oriented CPA? If you own real estate and are not using a good real estate oriented CPA, then that could be very costly! You need to correct that defect RIGHT NOW!
Our new President has ideas for tax increases to fund the new socialized medicine and other programs that will require new tax law changes. Guess what…they will not favor additional wealth accumulation by investors and business owners.
Get ahead of the curve… even then, it will not be easy or safe. Don’t go to a proctologist for a tooth ache, and don’t trust your financial future to tax counsel to a person who is not an expert in real estate taxation and real estate investment concepts.
Get informed counsel for your specific needs! If you need assistance in finding a “real estate oriented CPA”, then call me Bob Nelson (541) 485-8100. I have some ideas.
