Category: Specialized Tax Incentives

Cost Segregation for Automotive Dealerships after the TCJA Changes

The automotive dealership industry is unique because each dealership is in a constant state of construction, remodeling, expanding or purchasing existing properties. The only way to ensure this constant state of flux doesn’t bankrupt a dealership is to review these assets to determine the shortest recovery life possible, expensing in the current tax year.

By taking advantage of all eligible tax deductions it opens up cash flow for your dealership that would have otherwise been lost. A fixed asset review can easily be done by having a cost segregation study performed.

The Tax Cut and Jobs Act or TCJA was the most sweeping tax code change in 30 years and has significant impact on the automotive dealership industry along with the tax incentives that allow you to obtain the benefit from a cost segregation study.

There are three significant aspects of the TCJA that when combined make for an interesting ride for auto dealerships looking to obtain their rightful tax deductions. Let’s take a look.

Section 179
The TCJA expanded section 179 from a $510,000 limit to $1 million and now includes improvements it did not previously such as: roofing, fire protection and alarm systems. All of which are large expenses for an auto dealership in the midst of new construction or remodeling.

Floor Plan Interest

The TCJA preserved the 100% deduction of floor plan interest. If you are eligible for floor plan interest you must claim it, it is not optional. However, there is a catch. If you are eligible you cannot claim bonus depreciation. This doesn’t mean an automatic sigh and slump in your chair, not all dealerships qualify for floor plan interest and bonus depreciation is not the only aspect of a cost segregation that benefits auto dealerships.

Bonus Depreciation
Bonus Depreciation was highly expanded with the TCJA. It was increased from 50% to 100% and applies to both new and used properties acquired through December 31, 2022. This is an unheard of expansion of bonus depreciation and has such a significant impact that the National Automobile Dealers Association (NADA) is currently working through hearings with the IRS demanding the 100% bonus depreciation because the TCJA eliminated the like-kind exchange tax benefit for all but real property. We expect to see continued discussion on this topic over the next several months.

Although some automotive dealerships won’t be able to benefit from the expansion of bonus depreciation because of the changes with the TCJA it does not eliminate the enormous financial impact that a cost segregation study has for an auto dealership.

To find out more please contact speak to your Advisor today!

Economic Development Agencies and The Startup Credit

The typical company being served by an Economic Development Agency meets the exact qualification standard for the startup credit.

Economic Development Agencies & What Their Primary Goals Are

Economic Development (ED) Agencies, although public entities, are highly focused on producing measurable results/metrics because their funding (that is, their jobs) from state, county, city and/or university entities depend heavily on their results.

The key metrics that ED Agencies are measured by:

  1. Number of jobs created by the companies they serve
  2. Number of dollars in follow-on capital which refers to investment (*and/or grant funding*) procured by the companies they serve

How The Startup Act Assists Economic Development Agencies In Reaching Their Goals

Though the Act doesn’t directly speak to grant funding, know that grants are easier to come by if a company is well-capitalized and has the credibility that comes with having procured capital [i.e., implied vetting]. Plus, many grants require matching capital from private/commercial investors.

The article, The “Startup Act”, Catching the Economic Development Winds, was written to resonate with Economic Development Agencies because it addresses how, in practical ways, the Act’s incentives can make both job creation and venture capital investment much less challenging than it would be without the incentives.

The clear intentions of the Act’s incentives are:

  1. Job creation, especially technology-based jobs
  2. Investment capital flowing into younger technology-based companies

These intentions line up perfectly with an ED Agency’s metrics.

It is completely possible that any given ED Agency isn’t fully aware of the Act’s incentives and is therefore not striving to meet its metrics with all of the tools available.  

Our Objective

The objective is to “inform and educate” these agencies so they can “inform and educate” their client companies (and potential investors in those companies). This would likely involve connecting client companies with the resources, probably in the form of professionals/experts, that can dig into their particular situations to see about realizing the benefits intended by the incentives.

GMG Savings Advisors can offer the ED Agency to connect its client companies with the experts/professionals that can make both increased job creation and follow-on capital a reality.

The Great Shock of April 15th

This tax season I encountered a record number of business owners that were outright shocked to find out how much they owed for 2014 taxes. There are a few common questions I keep hearing.

#1 – How Did I End Up Owing Money?

There are four key areas that contributed this year to so many companies owing:

  1. Surprise Profitability
    The last several years have been decent if you’re lucky but dismal for most. This caused most companies to pull back on quarterly tax prepayments, or often eliminate them altogether.
  2. 2014 Was Better Than Expected
    There is no question that 2014 started an upswing that is continuing to get stronger with each passing quarter (even for those companies have yet to feel the impact of that upswing). Once income began to flow again, many businesses were forced to make capital investments that were years overdue. This means that although 2014 was in fact more profitable, it wasn’t “felt” by many Owners. Not all investments may be written off in the current year. Even if the bank account hasn’t recovered, the P&L sheets have and additionally the IRS considers many to be profitable and out of AMT. Even if the bank accounts don’t reflect the same.
  3. Tax Breaks Disappeared
    Without many major tax breaks that companies have not only come to enjoy, but have come to count on, many are finding themselves with unexpected increases to their tax liabilities.
  4. Tax Rates Increasing
    Tax rates have increased, for example; the recent Personal Limit increase to 40% and Capital Gains increasing from 15% – 25%.

#2 – Why Didn’t My CPA Warn Me?

Many owners are left wondering:

  • Did my CPA let me down?
  • Why didn’t they prepare me for this?

The reality is, your CPA only knows the information you provide to them And for most of us business Owners we don’t do our CPAs any favors. As Owners we know this, and if we are honest we’ll admit that we just don’t take the time necessary to discuss an overall tax strategy with our CPA.

Yesterday I spoke with one CPA that was completely unaware that their Client had purchased an additional building (over $2M in cost), and another CPA that upon delivery of our Cost Segregation report didn’t understand where we got our figures from only to find out the Client spent over $300K in renovations last year that they failed to tell the CPA about.

Most business Owners are guilty of … running their business. As business Owners, we make decisions today that are good for our company and good for our bottom line, with little to no regard of how it affects our tax strategy (and it usually wouldn’t cross our minds to call our CPA in the middle of summer to review something for next April).

#3 – What Can I Do About It?

Step #1 for most business Owners I’ve talked to is:

  • Pound their fist on the desk angrily while complaining about the government
  • When that ceases to provide relief move on to the below Step 2

Step #2 (True Step #1)

For some business Owners, you bit the bullet and made a payment yesterday, for others you either filed extensions or simply filed without making a payment and are going to wait for the dreaded IRS bills to arrive.

In either instance, the good news is that just because tax day has come and gone doesn’t mean your numbers are written in stone. There is over $200B in Federal Tax Incentives allocated to small and mid sized businesses to help offset your liability.

We’ve developed a simple online tool for business owners to check in 30 seconds if you qualify for any Federal Programs.

Click here to find out in 30 Seconds if you qualify for any Federal Tax Incentives.

 

Strategic Partnerships for Mutual Benefit

A strategic partnership is when two businesses join together for mutual benefit. The businesses would normally not be competitors but instead work cooperatively with a common goal in mind.

Strategic Partnerships allow businesses to gain a competitive advantage by mutually sharing of resources, markets, technologies, capital or people.

At Growth Management Group (GMG) we believe wholeheartedly in building Strategic Partnerships and actively reach out to industries and organizations that would benefit from such a partnership. In 2013 GMG entered into a strategic partnership with ELFA (Econo Lodges Franchisee Association).

ELFA’s goal is to “help each franchisee maximize the value of their property through networking and the sharing of creative ideas as well as time and money savings tips”. This strategic partnership supports ELFA’s goal by providing its members the opportunity to gain millions of dollars through specialized tax incentives.

At $240,000 the hotel and hospitality industry is currently number two for the largest average savings received per client with GMG. This is because nearly all business owners in the hotel industry own their building, and usually own multiple locations. With that basic qualification hotel owners substantially qualify for :

GMG offers ELFA members additional benefits including:

  • Free Consultation
  • 30% Discount on Study Fees

GMG believes in building and sustaining strategic partnerships to ensure the continued benefit for all involved. Hasu Patel, President of ELFA said, “The Econo Lodges that have worked with GMG so far are please with the results in savings. I encourage more Econo Lodges to reach out to Growth Management Group”.

If you would like to know more about the GMG’s ELFA partnership or Strategic Partnerships please call 888-705-5557.

What the Last 5 Presidencies Have In Common and How It Affects Every Manufacturer In America

Believe it or not, there is at least one thing that the last five Presidential Administrations have unilaterally supported, and we can feel quite certain the next will as well.

There is a little known tax credit that is part of Section 41 of the Internal Revenue Code, allowing manufacturers to reclaim a small portion of their annual payroll simply by performing activities manufacturing companies are already doing as part of daily operations.

This credit may be the only thing both sides of the aisle can actually agree on.   It has bipartisan support in both houses, backing of the Obama Administration, and has been renewed by every single Presidential Administration over the last 32 years.  How can there be such a disconnect between what may be the only thing the last five presidencies have in common?

A lot of the confusion is in the name.  Many manufacturers don’t believe they do “R&D” because they don’t have a traditional R&D department.  The IRS definition of R&D is quite different than yours or mine.    It often includes activities such as:

  • Manufacturing
  • Fabrication
  • Engineering
  • New Product & Process Development
  • Developing New Concepts or Technologies
  • Design – Layout, Schematics, AutoCAD
  • Prototyping or Modeling
  • Testing / Quality Assurance:  ISA 900X, UL, Sigma Six, etc.
  • Integration of new machinery (CNC, SLA, SLE, etc.) into existing processing
  • Software Development or Improvement
  • Automating or Streamlining Internal Processes
  • Developing Tools, Molds, Dies
  • Developing or Applying for Patents

Just to name a few…….

Only the folks in Washington DC could take unilateral support and turn it into unilateral confusion.

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.

$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.

 

 

Specialized Tax Incentives for the Funeral Home Industry

The IRS Is Trying To Help Funeral Homes Pay Them Less! (Don’t believe it? – read on)

This statement is directly from www.irs.gov, “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.”

This largely overlooked tax strategy often reaps over $100,000 in tax benefits for a typical funeral home.

This strategy dates back to 1959 when the U.S. Tax Court allowed building owners to pursue component-based depreciation. In 2004 the IRS established a ‘Cost Segregation Audit Techniques Guide’; the Guide provides clear direction regarding how to establish the cost basis for non-structural building components and which depreciation time-lines to use for electrical wiring, plumbing, partitions, carpeting, finishes, parking lots, landscaping (and other qualifying components).

Think of it this way; why depreciate, say, carpeting in a 39-year time-line as if it were a structural steel beam? The IRS allows building owners to depreciate many such items in a more appropriate 5-year time-line. In fact, roughly 20% of your Funeral Home could likely be moved from 39-year to 5-year time-lines!

And just when you think you’ve died and gone to heaven (a little Funeral Home industry humor), it gets better! The IRS allows you to move such depreciation that you didn’t claim in years past, so-called ‘catch-up depreciation’, into your current tax year without having to do an amendment. Your CPA can move this ‘catch-up’ figure to your current tax year through a simple 481 change in accounting method.

The IRS recommends that building owners wishing to take advantage of this logical and well-established tax strategy conduct an Engineering Based Cost Segregation Study which documents:

  1. A building’s qualifying non-structural components and
  2. The depreciable cost basis for each of those components

The Study also places each component in the appropriate time-line per the IRS Guide.

For additional information contact us.

Auto Dealerships See Tax Benefits From Renovation

Many automobile dealerships implement significant renovations as the industry morphs due to technology changes and as manufacturers rebrand.  The goal of the renovations are, of course, to improve top line performance (sales).

Top line goals can effectively be achieved more quickly by capitalizing on the tax benefits associated with the renovations; for instance, it’s not uncommon for $1MM in renovations to conservatively equate to a $60,000 tax related improvement in the bottom line. Given a 10% profit margin, that equates to a $600,000 increase in top line results.

What Tax Benefits?

Tax benefits associated with construction costs can be procured through an Engineering Based Cost Segregation Study. This Study applies tax compliant depreciation time-lines to certain non-structural components. For instance, instead of depreciating carpeting over 39 years as if it were a structural item, it would be depreciated in five years. Many other non-structural building components can be depreciated in 5, 7 and 15 years versus 39 years.

Furthermore, the tax benefits of properly depreciating current renovations can apply to the entire existing facility, including past renovations (see “The #1 Lie About Cost Segregation“).

So, here are the benefits of reducing Federal and State taxable income by safely ‘accelerating’  depreciation on certain building components with a rigorous Study:

  • New renovation, purchase or construction will result in increased cash flow in the first 6 years.
  • Owned for 5 or more years qualifies for all unrealized depreciation carried forward into the current tax year.

From our experience, its not uncommon to document as much as $200,000 in accelerated depreciation per $1MM worth of building; assuming a 35% tax rate, the resultant reduction in taxable income would translate to a $70,000 bottom line improvement.

A project fee for a Study is typically between $10,000 and $20,000 per building, and can depend on property size, construction quality, location, availability of accurate construction documents, other.

So, a $2MM building could provide a $140,000 bottom line improvement; that’s about a 10:1 benefit-to-cost ratio for performing the Study (…and that’s not considering the net cost basis of the Study after writing it off as a business expense!).

In summary, cost segregation analysis is a logical tax strategy dating back to 1959 when the Tax Court first allowed component-based depreciation of buildings (though greatly clarified over the past decade with the IRS’s Audit And Technique Guidelines). Even properties purchased years ago can capture benefit with a very attractive cost-to-benefit ratio for performing an Engineering Based Cost Segregation Study. Any auto dealership whether purchased, constructed or renovated for costs in excess of $500,000 should consider this service.

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

For additional information contact us here.