Automotive – GMG Savings

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!

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:

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.
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.
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.
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.

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.

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:

Engineering-based Property Cost Allocation
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.

Who Qualifies for Tax Incentives and Stimulus Money?

We hear a lot about stimulus money these days. We hear who is getting it and what kind of positive things it is doing for the nation. Those stimulus dollars, however, should be working to benefit more local, small to mid-sized businesses. If you fall into this category, your money is likely going to someone else’s business; potentially your competition.

Wading through government forms, even on the simplest level, can be aggravating and time consuming. The idea of ‘free money’ from the government can also be a very scary prospect for skeptical investors and business owners. But there are people out there who have spent a great deal of time learning how these programs work to provide businesses with opportunities that can be extremely beneficial.

Ryan Maddock and Jeremy Harrison of Growth Management Group (GMG) lead a small but growing team of dedicated, positive and knowledgeable staff members that help business owners bridge the daunting gap between not having stimulus money and having it. These funds are not the same as grants which typically need to be used for ultra-specific purposes. Stimulus money can, in many cases, be used as discretionary funds. This frees up the business owner to use the funds as his or her vision sees fit whether it is for new software, equipment, tax offsets, etc. Manufacturing firms in the area, businesses in other states, hotels, restaurants such as Leo’s Coney Island and even Lawrence Moon Funeral Home have capitalized on stimulus money through GMG’s services.

There are currently four programs in full swing for a variety of businesses; manufacturing across the U.S. and in some cases Canada, commercial property owners who have purchased their property within the last twenty years, the HIRE act which pays employers that hire 25 new employees a year (that includes turnaround) and energy credits/energy incentives which is a program that will probably evolve further. Currently the Obama administration has set aside 60 billion dollars for renewable energy. While these programs do have other stipulations and guidelines, GMG has been successfully wading through paperwork for clients in 38 states. Ryan pointed out that stimulus funds have been around since the 1980’s. These programs usually morph into new programs over time and they’re not going anywhere.

If you’re wondering why you’ve not heard much about the eligibility for these funds that is simple to explain; the federal government isn’t always that great at advertising and marketing. As a result, ninety-two percent of companies that qualified for these funds last year didn’t access them and the eight percent that did, were larger companies who tend to have an easier time accessing these sorts of programs

Staying on top of the changes in federal programs is crucial to the success of the service offered by GMG. Fees are based on a percentage of funds obtained, not a flat or hourly rate which business owners have to come out of pocket for. And in many instances, the funds can be applied retroactively from as far back as 2006.

Worried about how your CPA feels about these “too good to be true” stimulus dollars? GMG works with local CPA firms so they understand the hesitancy that comes along with these types of government programs and are able to alleviate those fears. Do you feel a sense of malaise when it comes to paying taxes? There’s good news for you too. Since stimulus funds are made up of tax dollars, this might be your chance to cash in on all the money you’ve doled out over the years to upgrade your business.

See Full Article as Featured in Downtown Revival Magazine. Click Here

Michigan Company Helps Find Millions in Tax Breaks for Small and Mid Sized Companies

Jeremy Harrison of Growth Management Group interviewed by Michigan Business Magazine about helping small and mid sized businesses find tax breaks and stimulus money.

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For many businesspeople, the word “stimulus” might as well be a four-letter word. For Flint-based Growth Management Group, tax incentives are no dirty word, but rather spell opportunities for businesses to find federal and state incentives to help their bottom lines.

The company seeks out the tax incentives, energy savings and hiring incentives that businesses and many certified public accountants miss during their tax preparation. The company began in the mid 2000s as a lean consulting firm, helping manufacturers remain competitive. By chasing incentives that manufacturers left on the table, GMG stumbled upon a business opportunity as manufacturers in the state were battered by the economic downturn. Sales Manager Jeremy Harrison took time to speak with MiBiz about the 25-person firm and its role turning over the rocks in companies’ books looking for the untapped tax incentives there.

MiBiz: How much is out there for companies in terms of untapped incentives?

Harrison: We target the small to medium size business. The state and federal programs are called stimulus incentives when really they are tax based. If someone is getting ready to write a check (for taxes), they should be looking at every single program to help offset them. The areas of the programs are anywhere from commercial property owners to manufacturing research and development and payroll, such as the HIRE act. That is just part of the hiring incentives out there. There are hundreds of incentives that vary by state and by some municipalities. For our average client, we can save around $200,000. For some people, it is significant. For others it is a drop in the bucket. We don’t go after the GMs or Fords of the world — they’ve got their own teams of lawyers and accountants looking for these incentives. For a client who may have paid a couple thousand in taxes over the last couple of years, they’re excited about getting that back.

MiBiz: What’s preventing companies from tapping these programs themselves?

Harrison: The number one roadblock is that your CPA is not your consultant in these areas. If you have a large firm, they may have an entire division devoted to finding tax incentives. We have 200 attorneys (in our network) and can tap them when needed.

A normal CPA is already buried up to their eyeballs with paperwork for their clients. People assume that their CPAs have a grasp of all the incentives that are out there, (but) almost every CPA says they know the programs are out there. They have been to a seminar and know about them, but are they taking it to the next level and able to file all the necessary paperwork? Standard CPAs don’t have time to dig into those areas without some help. We help the CPAs consult with their clients.

We don’t want Michigan businesses to lose money because of the disconnect that is out there.

MiBiz: The stimulus was a major campaign issue, with many business interests coming out in opposition to the ARRA. Are you encountering reluctance to take part?

Harrison: We hear that “we don’t want any of that Obama money.” There has been stimulus money out there as long as there has been a United States. Nobody paid attention until there was the economic downturn. Until the government came in with TARP and ARRA, no one paid much attention.

Many of these incentives came in the tax reforms of 1986. A lot happened in both Bush Administrations. Manufacturing incentives have been around almost as long as there have been manufacturers. The government makes (these incentives) extremely difficult to get. We have the expertise. That is not money that is out in the middle of nowhere. We are lowering the amount of money you are paying in.

We do have a challenge that customers have to know that there are incentives for them. Mileage is a deduction on a tax return. Now imagine if (the government) said that you have to have a 500-page technical report for that deduction — that is what we’re talking about.

MiBiz: Where do you see opportunities going forward?

Harrison: The manufacturing credits sunset at the end of the year. It is annually updated and used as a political bargaining chip. They never sunset, but it has always been threatened. President Obama himself said that he wants to make these credits permanent. He said that, but it hasn’t happened.

I see the hiring incentives as becoming increasingly important. With the economy and unemployment rate where it is, the government really wants to be seen helping improve the employment picture.

On the energy side, everyone under the sun knows energy is a hot button issue. Government is pushing a number of mandates about renewable energy, federal and state incentives are being talked about at various levels. We truly feel that energy will be at the top of the chart of things that we are going after for clients.

Featured in MiBiz Magazine
By Nathan Peck | MiBiz

For Full Article Click Here