If, after seeing the title, you’re still reading, then your company has likely withstood the economic downturn and you’re wondering if its time to start moving forward now that the economy is showing (some) signs of improvement.
Some of your former competitors have gone out of business. You have returned your focus to what made you successful in the first place. You might even start seeing (or see) a growing demand for your product or service and, at the same time, you are noticing new opportunities. If these characteristics fit your company, it may be time to start considering ways to increase profitability and begin to grow your company.
One way could be to consider purchases of capital items that you may have put on hold over the last 24 months due to the economy. These purchases might include warehouse and factory expansions, software upgrades, machinery and equipment purchases, etc. We are in a buyers market and many contractors, software vendors and suppliers are still willing to perform services or provide products at a discounted rate. Also, if any of your competitors have gone out of business, their used equipment might be available at a fraction of new equipment costs.
If you decide to take the plunge in this buyers’ market, you may want to consider these tax savings opportunities:
Deduction for Energy Efficient Commercial Buildings (Section 179D)
Section 179D provides a deduction for taxpayers who own commercial buildings and install energy efficient items. Improvements made to HVAC systems, hot water systems, interior lighting, and/or the building envelope may qualify.
Improvements must achieve a 50% reduction in energy and power costs in order to obtain the full deduction. However, a partial deduction may still be available if a smaller reduction is obtained. The maximum amount of the deduction cannot exceed $1.80 per square foot for the property placed in service. For example, if $200,000 of qualifying property is placed in service in 2010 and the building has 50,000 square feet, then a deduction of $90,000 may be available.
Note that the deduction reduces the cost basis of the building and is treated as accelerated depreciation. Generally, the deduction is taken by the building owner, but for public buildings, the deduction may be claimed by the building designer.
Cost Segregation Study
When a building is purchased, it is often capitalized as a single line item on a company’s depreciation schedule and depreciated over 39 years. The purpose of a cost segregation study is to analyze the costs that are included in the total building cost and segregate those that could be depreciated over shorter lives. These shorter lives can save the Company tax dollars in the short term by increasing the amount of depreciation that can be taken up front. Many items such as flooring, light fixtures, ceilings, air filtration systems, roofing, exterior decorative items, certain HVAC components, and others can be broken out during a study.
$250,000 Expense Deduction Available in 2010
Not to be confused with the Code Section 179D deduction mentioned earlier, but the recent signing of the HIRE Act extends the increased deduction limitations under Section 179. The extension provides that taxpayers can deduct up to $250,000 of equipment purchases in 2010 if certain income and purchasing limitations are met.
Since this extension is only through 2010, it should be considered in your Company’s equipment purchasing plans. Unless extended again the expense deduction of $250,000 is scheduled to drop to $25,000 in 2011.
Is it time to consider improvements within your company? You know better than anyone. If it is, then you may want to consider the opportunities mentioned above. For more information on how these tax planning opportunities might apply to your company, please contact Brant Kennedy, CPA, at Harding, Shymanski & Company, P.S.C.
