Understanding Cost Segregation Studies for Small Business Owners

 The initial few years of owning a business can be quite challenging-finances are tight, you’re just getting the word out and you’re up against the competition who have already established themselves in the market. Research has shown that only 80% of businesses last for more than a year. The other 20% fail due to shortage of cash. This statistic doesn't have to worry you though if you have just started your business because there is an easy solution-cost segregation. 

WHAT IS COST SEGREGATION 

Cost segregation is a tax planning tool that allows businesses with constructed, purchased or remodelled properties to increase cash flow by expediting depreciation deductions and deferring federal and state income taxes. 

HOW WILL A COST SEGREGATION BENEFIT YOUR BUSINESS 

Your business can benefit in many ways by working with cost segregation services 

  1. INCREASES CASH FLOW. 

Cost segregation firms identifies all your properties eligible for a 5. 7- or 15-year deduction. By accelerating the depreciation deduction of those assets, you can reduce your current tax liabilities which in turn will improve your cash flow. The money saved on taxes can also be reinvested in your properties or used for other investments 

  1. ACCLERATES DEPRECIATION 

The main purpose of cost segregation is to allocate the building’s total cost into short depreciation cycles for accelerated deductions. This allows you to spread deductions over a period of time rather than accounting for it one time. You thereby gain a cash advantage when it comes to cash flow. 

  1. INCREASES YOUR PROPERTY VALUE 

Cost segregation firms can also help you improve the value of your properties. Since many of the components will be depreciated at a faster rate, they can be replaced quicker. Besides improving the structure of the building and its value, it also reduces maintenance costs in the future. 

HOW IS COST SEGREGATION DONE? 

During a cost segregation, engineers will identify and quantity all your building assets and assign each of them a cost. These costs are then divided into different categories depending on the depreciable asset class lives. Base buildings or shell assets are usually classified under 39-year assets depreciating however, other assets like office furniture, fittings, lightings, outdoor furniture and recreations are classified either under 5-year, 7-year or 15-year assets. 

HOW MUCH WILL COST SEGREGATION COST? 

The cost of conducting a cost segregation will be determined by cost segregation firms after assessing  the size of your building and its assets. You can expect to pay anything between a few thousand dollars to tens of thousands of dollars. One thing to remember is the money you shell out for a cost segregation will be worth it as you will save on taxes and improve your bottom line. 

Cost segregation studies can be a valuable asset for business owners who want to reduce tax liabilities and improve cash flow. If you believe your company can benefit from a cost segregation, consult with Capstan Tax, one of the best cost segregation companies in the United States. Over the years, they have helped many of their clients save millions on tax deductions. Their cost segregation consultants are fixed assets experts. After a site visit to your properties, they will recommend the most appropriate segregation study based on present circumstances and future plans.  

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