$14B Available in Manufacturing Tax Credits

$14B Available in Manufacturing Tax Credits

There is a new bill that would put $14B in tax credits back into the pockets of manufacturers.  What makes this bill unique amongst its predecessors is that manufacturers don’t have to wait around for this one to pass through its bureaucratic channels (or stall out in a constant state of delay and confusion).

Manufacturers can take advantage of this program before it passes.  This is because a largely unknown version of the program already exists called the R&D Tax Credit.  A temporary version is in place through the end of 2013 as part of the American Taxpayer Relief Act of 2012.  So, manufacturers can actually begin receiving funds this year based on previous years activities.

5 Reasons Manufacturers are not taking advantage of the current version of this credit:

  • They don’t understand the IRS definition of R&D (see article:  R&D I don’t think we do that!)
  • They believe their companies are too small
  • They believe the benefit won’t outweigh the work
  • They believe they have to change the way they operate in order to qualify
  • They believe that the credit is not being renewed

Not only will this credit most likely be renewed, but congress has continually made it easier to qualify and expanded the eligibility to include not only the Fortune 1000 but also small to mid sized firms who can utilize the credit to significantly affect their bottom line.

When working with manufacturers we ask two questions to determine qualification:

  1. Are you expecting to be profitable this year, or were you profitable in any of the last 4 years?
  2. Is your annual payroll for any of these years in excess of $1 million?

Since 2004 Growth Management Group has been educating and assisting Manufacturers and other Commercial Property Owners on their rights to programs buried deep within the tax code.  To date, we’ve assisted small and mid sized companies discover over $300M in benefit.  Contact us for a comprehensive review.

 

 

Do you have a ‘Tax Preparer’ or a CPA?

Depending on your answer, you could be getting bad advice which puts more money in the IRS’s coffers (and leaves less in your pocket).

Below is the crux of a typical tax preparer’s opinion regarding Engineering Based Cost Segregation Studies which an experienced CPA would say has kept many commercial property owners from implementing this highly beneficial tax strategy which is effectively encouraged by the IRS.

Here is a typical ‘tax preparer’ statement to commercial property owners:
“You are not getting additional depreciation, you are accelerating depreciation by allocating cost to shorter life. I advise against such a strategy as there can be future tax implications and also there is upfront cost involved.”

For frame of reference, here is the IRS’ view (from www.irs.gov) on cost segregation:
“Buildings and structural components have substantially longer depreciable lives than personal property. Therefore, it is desirable for taxpayers to maximize personal property costs in order to accelerate depreciation deductions and, hence, reduce tax liability.” (source)

Here’s how many experienced CPAs would look at this matter:

The above point of view isn’t considering the bigger picture. For instance, only looking at the (potentially) negative capital gains tax implications associated with cost segregation by itself is ‘missing the forest for the trees’:

  • It is not necessarily true this would be a ‘negative’ as it would depend on the ultimate sale price versus the depreciable cost basis; if the sale price is equal to or less than the depreciable cost basis then the capital gains issue is, well, a non-issue.
  • There is no consideration given to the positive effect on the income tax picture due to cost segregation; this positive effect needs to be weighed against the potentially negative capital gains effect.
  • In general, property owners will benefit from cost segregation if they hold the building for at least 18 months. One reason for this dynamic is that the capital gains tax, even at the 25% ‘re-cap’ rate, is much lower than the typical 35% to 39.6% income tax rate.
  • There is an assumption that the property owner is absolutely giving up all future depreciation benefits in exchange for taking those benefits now. Well, if the owner never replaces carpeting, wiring, plumbing and other such non-structural components, then, ‘yes’, that would be the case. But the reality is that these components will ultimately be replaced (which is the basis for the relatively shorter/accelerated tax-compliant depreciation time-lines for such items). The associated replacement costs can be depreciated.

So, in fact, the depreciation isn’t lost in reality. Plus, only about 20% of the building can be ‘accelerated’…the remainder stays in 39-year S/L.

  • In effect, this is a time-value-of-money/opportunity cost ‘play’. So an owner’s capitalization rate needs to be considered; a critical mass of money in the hands of a good businessperson NOW could feasibly produce a 10% or greater return. An owner’s ability to convert that ‘now cash’ (i.e., cash that becomes available due to cost segregation’s resulting reduction in current income tax) into more cash could easily dwarf the down-the-road bit-by-bit depreciation cost deductions which the owner MAY be passing on.
  • The “upfront costs” for conducting an Engineering Based Cost Segregation Study are barely worthy of factoring into the benefits equation; first, the Study is a business expense and effectively comes at a 35% (+/-) ‘discount’, and secondly, the Study cost can often be less than 10% of the tax benefit (even without the ‘discount’). Most business-minded people would find a project with a minimum 10:1 benefit-to-cost ratio to be worthy of pursuit.

So, do you have a ‘Tax Preparer’ or a CPA? The best way to find out is to ask him or her how they perceive the value of an Engineering Based Cost Segregation Study for a commercial property owner.

To stream a 3-minute video regarding this topic, please click here.

For additional information contact us.

5 Steps From Exhausted to Excited

I spent much of last year waking everyday only to be more tired than the day before. I would anticipate every weekend, hoping it would be the recharge I desperately needed. I tried being active; I tried being inactive. I tried long weekends filled with activities, and long weekends parked on the couch in my theater room. I tried healthy eating and when that didn’t boost my energy, I tried comfort eating. Next, I sat down and made a mental list of things I had done in the past that “got me back on track”. I then resorted to the extreme of repeating previous vacations that I had found refreshing (all the way down to the same resort, and same restaurants). When you’ve been a CEO for 15 years you develop a bag of tricks to get you out of the valleys. But this time was different; every trick in my bag was failing me.

I began to wonder if that was that.  Maybe I just couldn’t get out of the hole. Were my best days behind me? The encouragement I kept getting was that I was doing all the right things and it was just going to take time. So, all I could do was get up every day and grind away at every problem I saw. Some days were awful, some decent, but none left me feeling fulfilled, they were no longer great.

Then one day the sun started to shine (literally…spring came). But it wasn’t just that, I found myself more rested, more excited, dealing with fewer problems, and I found myself happier. Being the analytical person I am I couldn’t just let that be, I needed to know why! What had changed? The problem with trying so many things is I didn’t have a clue what finally worked, or if it was a combination of things. I would love to blame this on analytics but, I think it’s more like self preservation; wanting to know how to get back to myself quicker next time.

Here are the top five things that allowed me to move from exhaustion back to excitement:

1.  Focus
We were all designed for something, and we have to ask ourselves, “What are those few things that only I can do?”  “What are the few things that I am truly one of the best in the country at?”  And now for the painful question…“How much time do you actually spend on that?”  For most of us the answer is probably less than 10% of our time. Once you determine the answers to these three questions, get rid of almost everything else! Seriously, delegate it, let go of it, or just stop doing it. What makes you great will never make your organization great until you are focusing the majority of your available time and energy on it.

2.  Balance
This may seem contrary to the first point, but only doing what we enjoy is unhealthy. Let’s use baseball as an example; if you are amazing as a first baseman then stick to it, hone that skill! That doesn’t mean leaving out all the things you may find lacking in enjoyment. We all see the play on ESPN that makes the highlight reel, but no one talks about the hours of training every day, the routine, diet, coaching, heat treatments, and ice baths that play out behind the scenes. Do you think ball players find that part enjoyable? Remember, there are numerous hours of hard work involved to make up 15 seconds of ESPN fame.

American culture is to avoid the things we dislike. We were not meant to avoid pain, in fact embracing the things we dislike or find painful make the things we do enjoy that much more satisfying. Imagine waking up every day in paradise, after a while every sunset is just a sunset; every wave is just a wave; and the relaxing sound of the ocean…fades away.

3.  Over-commitment
Top performers almost always struggle with this. We thrive on challenge, we enjoy being at the top of our game, and we dislike sitting in the back row whether it be at a networking event, the office, or even at church. This leads to over commitment. Not because we don’t know how to say no, but because we lack the ability to be a spectator. We see everything as what could be, and what we could contribute to it. For years I tried to figure out how to shut my brain off and just enjoy “participating”. Then I realized the real key is accepting the fact that I’m not a spectator and never will be. So, I have to limit the things I put myself in front of. I have to admit to myself, if I even attend a coaching group I will end up leading it. I have to enter every activity understanding that fact before I even choose to participate. I have to ask myself, “Am I willing to dedicate a significant portion of my time to this?” If the answer is no, I don’t get involved.

4. Prioritize
Start your day the right way. Many of us jump right into our email box and find ourselves hours later still trudging away; exhausted and having not completed anything of true importance. That’s because email is the art of fulfilling other peoples’ requests. You have to start your day the right way. List your work, AND THEN work your list. Only after doing this can you take control over your day. Once you have a list you can look through your email for additional tasks (which is all emails really are these days).

PRODUCTIVITY TIP: Now that you have a prioritized list, the old adage of “do what’s most important first” isn’t always the best approach. When looking at your tasks determine which ones will leave you energized, and which ones will leave you exhausted? Arrange your tasks by doing energizing tasks first, and then build from that momentum to tackle more draining tasks. Be honest with yourself, there are some tasks that once completed you are just “mentally done” for the day. I always schedule those meetings/tasks for the very end of the day so that I have the energetic momentum of the entire day behind me backing me up (and so I can go home afterwards, as I know I am going to be “done”).

5. Routine
It takes 21 days to develop a habit and only 2 – 3 to get out of one. You need to have control over your day, something you can rely on. Our minds have to be kick started. We are forced to make hundreds if not thousands of decisions on a daily basis. By having a routine you are telling your brain to fire up and pointing it in the right direction. Having and sticking to a routine naturally leads to a more organized day. Once you have established a routine, it becomes automatic; you will start performing tasks without realizing it. So, you get done what needs to be done even while your mind is occupied with other things.

 

Stop Surviving and Start Growing

CEO’s are about the thrill of the deal, achieving something no other person has, the adventure, the vision!  Terms like survival, and cost cutting are something they’re willing to tolerate, but only as a means to the next opportunity to dream again. Even though the business landscape hasn’t changed much in the past few years, the attitude of the CEO has.  We are tired of surviving, and ready to grow again!  Even more, we refuse to live in survival mode.

So, what’s next?  The answer is simple:  GROW.  It seems like such an obvious solution, why didn’t we think of it years ago?

I think it’s because we weren’t hungry enough!  Cutting costs was easier than returning to the practices that once grew our empires in the first place.  But now the fun is gone, work has become exactly that…WORK!  So, the decision has been made; the dreaming has started again and this is where we go from here.

4 Ways to Stop Cutting & Start Growing:

1st:  Start dreaming again.  Get away, go for a drive, sit down with a notepad or whatever it is you once did to dream.  Don’t be afraid, don’t get caught up in the “what if” and “how will we pay for that” roadblocks.  Let’s be honest, you never counted cost the first time you wrote a vision, why start now?  One tip:  dream bigger this time.  You’re older, farther down your path, with more capacity.

2nd:  Make the commitment.  Not just to yourself, make it known.  Tell your staff, family, colleagues and friends.  Accountability is a mighty force and letting others know your plan not only gets others helping push the boulder up the mountain, but it makes giving up more difficult.  Once your name is on the line and your direct reports are coming back with status updates, your team is involved; it becomes real.

3rd:  Get back to the basics.  I know it was fun for a while when we didn’t have to work to get new clients, when the only thing needed for growth was an open sign, but now it’s time to get back to the basics.  Ask yourself, “What was it that made me successful in the first place?”  “What crazy forms of gorilla marketing did I implement?”  “What associations was I apart of?”  And, the painful one…“How many cold calls was I or my staff making?”  It’s important that we realize while the world around us has changed into a social hotspot, traditional marketing and relationship building are still the most effective ways to gain long-term clients and partnerships.

4th:  Every decision should point towards growth.  I’ve watched many CEO’s over the last five years point every decision towards survival, not towards growth.  If I asked what they would do if a few hundred thousand dollars dropped in their lap, most would talk about growing their business and expansion, but that isn’t what happens when those opportunities arrive.  In the last 10 years we’ve gotten companies around $300M in Specialized Tax Incentives, and I have watched time after time a company receive this money and immediately start plugging holes; going into survival mode. They are dedicating hundreds of thousands of dollars towards keeping the status quo.  The answer is so simple; if we are committed to growth, we have to turn every decision towards that plan.  Recently I’ve seen a shift in mindset.  No longer are CEO’s willing to survive just keeping afloat.  They’ve dropped the bucket, stopped bailing water, and decided the real solution is to build a bigger boat.

The #1 Lie About Cost Segregation

Cost Segregation on Older Buildings?

It is impossible for me to calculate the number of calls I’ve had with building owners and CPAs on the subject of Cost Segregation. Working some numbers in my head (ok, on my calculator), the number is likely well over 10,000. Out of all those calls there is one particular item that continues to rear its ugly, uninformed head and I can no longer stay silent. I must respond… with vigor!

The “item” in question comes in the form of the following quote, which I’ve heard too often to count:

“You can only do Cost Segregation on a new building or new renovation.”

I have no idea where this rumor started. I hear it weekly and now I am blogging in rebuttal.

First, I will say an unequivocal “Yes”, it is beneficial to have a Cost Segregation study done when you purchase/construct/renovate a new building. In fact, anyone constructing or renovating a commercial property should have a study completed. However, the true power of Cost Segregation is displayed on buildings that are not new!

“But, you can only do Cost Segregation on a new building or new renovation”.

To officially rebut this statement, I will go straight to the source. The first sentence in the IRS Cost Segregation Audit Techniques Guide – Chapter 6.2 reads:

[box style=”2″][googlefont font=”Sanchez” size=”16px”]”A taxpayer may conduct a cost segregation study on used property and then recompute its depreciation deductions for prior years”. *[/googlefont][/box]

Not only “may” a taxpayer do this but over 75% of our projects are older properties. In the industry we call this the “Catch Up” method, and it can produce powerful results.

Here is an example:

Mr. Client acquires a commercial property for $3,500,000 five years ago and never completed a Cost Segregation Study.

Despite rumors to the contrary, Mr. Client recognizes he may now have an opportunity to benefit from a study (maybe he read this blog post).

Mr. Client hires an expert (GMG for example), who identifies 20% ($700,000) of components that should have been allocated to 5-year life instead of 39 years. Mr. Client jumps for joy when he realizes the IRS will allow him to “catch up” $700,000 of missed accelerated depreciation on his next tax return!

Why doesn’t every building owner and CPA know this?

The answer is simple; it is not their area of expertise. Although some building owners and CPAs have substantial experience with Cost Segregation, most do not. There is a dearth of true educators in this field, which unfortunately leads to much misinformation. These factors have caused countless thousands of building owners to miss out on this powerful tax savings strategy.

All is not lost!

If you own a building and have not had a Cost Segregation study performed, you have not missed the boat. Hundreds of thousands, or even millions, of dollars in tax savings may be available to you. Now that you are aware, let’s see how much you qualify for!  Contact Us today for more information.

* Full Link: http://www.irs.gov/Businesses/Cost-Segregation-ATG-Chapter-6-2-Change-in-Accounting-Method

Specialized Tax Incentives for Auto Dealerships

Auto dealers have two major tax incentives available to them, yet most are not taking advantage and consequently losing money. The main programs that most in this industry are missing out on are:

  1. Engineering-based Property Cost Allocation
  2. Property Tax Reduction

Engineering-based Cost Allocation

Engineering-based cost allocation identifies opportunities for federal, and in some cases, state tax advantages to owners of commercial industrial real estate by accelerating the depreciation on their property.

Taxpayers are typically correct in depreciating personal property such as equipment and furniture over five or seven years, but they often neglect available federal and state tax benefits by erroneously depreciating their entire investment in constructing or acquiring a building over 39 years. To do this correctly, one must hire an experienced engineer with a thorough understanding of construction finance.  The engineer will review all blueprints, architectural drawings, and electrical plans to isolate structural and mechanical components from those that are considered personal property in addition to identifying architectural and engineering fees that can be segregated.  The resulting cost allocation report will allow a taxpayer to:

  • Adjust the timing of deductions thus maximizing tax savings
  • Create a complete audit trail to resolve any IRS inquiries
  • Capture immediate retroactive savings on qualifying properties
  • Reduce real estate tax liabilities significantly

Property Tax Reduction

Probably the most frustrating bill that comes each year (or in some cases, twice each year) is the property tax bill. As of this writing, our studies indicate the average Auto Dealer in the United States is being overcharged by 20% on their property taxes. There are many reasons Auto Dealers are overcharged but mainly it is the result of improper assessments by the municipality. If you own an Auto Dealer and are paying property taxes over $50,000 per year, you should have a review completed on your facility. Reductions in this area are direct to your bottom line!

If you have not had a thorough review on your facility, especially as it relates to the areas of Property Cost Allocation, and Property Tax Reduction, you are likely losing money that should remain in your pocket.

Keller Williams Commercial Partnership to Bring Millions in Tax Incentives to Commercial Clients

October 4, 2012 – Keller Williams Commercial, the second largest real estate franchise operation within the U.S., has partnered with Growth Management Group, LLC (GMG), a national cost recovery firm, to provide commercial clients the opportunity to gain hundreds of millions of dollars through specialized tax incentives.

Based on the synergy between both organizations, this partnership will provide clients with every opportunity to make the best investment when purchasing commercial property by reducing taxable income, improving cash flow and ROI.

This partnership will substantiate KW’s commitment to excellence which was confirmed with the 2012 J.D. Power & Associates “How Buyer/Seller Satisfaction Study”, ranking them highest in customer satisfaction.

To date GMG has discovered almost $300 million dollars in refunds and/or incentives for it’s clients.  GMG’s  position as a nationally recognized full service Training, Development and Cost Savings Consulting Firm with a vision to stimulate economies aligns with the same commitment to excellence that KW has established.

For more information about Growth Management Group, LLC, contact:  Kendra Pelch, kpelch@gmgconsulting.net (888) 705.5557, www.gmgsavings.com.

For more information about Keller Williams Commercial Real Estate, contact:  http://www.kwcommercial.com

 

References: http://www.kw.com/kw/pressrelease.html?pressReleaseId=381

 

Restauranteurs – Stop Losing Money!

Restaurants have two major tax incentives available to them, yet most are not taking advantage and consequently losing money. The main programs that most in this industry are missing out on are:

  1. Engineering-based Property Cost Allocation
  2. Property Tax Reduction

Engineering-based Cost Allocation

Engineering-based cost allocation identifies opportunities for federal, and in some cases, state tax advantages to owners of commercial industrial real estate by accelerating the depreciation on their property.

Taxpayers are typically correct in depreciating personal property such as equipment and furniture over five or seven years, but they often neglect available federal and state tax benefits by erroneously depreciating their entire investment in constructing or acquiring a building over 39 years. To do this correctly, one must hire an experienced engineer with a thorough understanding of construction finance.  The engineer will review all blueprints, architectural drawings, and electrical plans to isolate structural and mechanical components from those that are considered personal property in addition to identifying architectural and engineering fees that can be segregated.  The resulting cost allocation report will allow a taxpayer to:

  • Adjust the timing of deductions thus maximizing tax savings
  • Create a complete audit trail to resolve any IRS inquiries
  • Capture immediate retroactive savings on qualifying properties
  • Reduce real estate tax liabilities significantly

Property Tax Reduction

Probably the most frustrating bill that comes each year (or in some cases, twice each year) is the property tax bill. As of this writing, our studies indicate the average Restaurant in the United States is being overcharged by 10% on their property taxes. There are many reasons Restaurants are overcharged but mainly it is the result of improper assessments by the municipality. If you own a Restaurant and are paying property taxes over $50,000 per year, you should have a review completed on your facility. Reductions in this area are direct to your bottom line!

If you have not had a thorough review on your facility, especially as it relates to the areas of Property Cost Allocation, and Property Tax Reduction, you are likely losing money that should remain in your pocket.