Top 5 Ways To Find Money Through Fixed Assets

Wow… today the stock market crashed so big it has probably got us all thinking… where do we go from here? Which also gets me thinking — how can businesses find some cash flow so they have some “rainy day funds” (or for operating expenses) in their back pockets?  Then it dawned on me… if they manage their fixed assets properly and received detailed cost segregation studies or had a proper 3115 study done, then shoot, EVERYONE could have extra cash flow.

If you think about it, there really are many ways to capture extra cash flow through fixed assets.  From very small efforts to large.

Top 5 Ways Fixed Assets Can Capture or Re-capture Cash Flow

  1. Cost Segregation Studies – extra Tax Deductions with properly classified fixed assets.  Money is in the DETAILS, not in bulked entries everyone!  Make sure you capture your 100% bonus depreciation for 2011 – it will go away soon.
  2.  Rev Proc 2007-16 Study – 3115 assets; allows taxpayers to change their method of accounting and claim the allowable depreciation (or amortization) amount they never claimed (i.e. bonus depreciation, etc.).
  3. Physical Fixed Asset Inventories – cost savings all across the board with Property Taxes, Insurance Premiums, Financial savings impact and more.  Have you ever done one of these before?
  4. Asset Appraisals – is it really worth TODAY what it once was?  Probably not.
  5. Automated Depreciation System – if you are still stuck in spreadsheet land for calculations, believe me when I say, YES you ARE missing additional expense and bonus that you are entitled to.  I see it every time I open someones spreadsheet!  Doesn’t matter the size of the organization or spreadsheet, there is ALWAYS calculation error, sometimes in the millions.

Which industries would benefit from these services / studies?  Just about all industries, well, maybe government and non-profit wouldn’t benefit from all five, but certainly from a couple.  Industries that would uncover a ton (always in the thousands – sometimes millions) from one or all five: hospitality, data centers, banks, manufacturing, retail, healthcare to name a few.

Now I know why I love waking up every day to go to work for the past 14 years (and growing)… because everything I (and my associates) do each and everyday help people and their businesses grow.  Who doesn’t like that?  Probably the same people who don’t like furry fuzzy kittens.

 

 

Tax Engineered Cost Segregation – Hotel Renovations

There has been a lot of buzz out in the hotel industry lately. Everyone is wanting to renovate in order to capture more occupancy during this economy – but cash flow can, at often times, be unavailable for renovations.  This is where Cost Segregation or Section 179(d) Energy studies come into play. 

More often than not fixed assets are misclassified with a longer depreciation life on a slow depreciation calculation.  About 8 times out of 10 line items are bulked instead of separated out or classified properly —  classified as Real property instead of Personal.  There are many benefits to classifying what goes into your renovations properly: an accelerated depreciation schedule = additional year-end deductions = more money in your piggy bank = additional renovations or keeping staff. 

Should you have questions about Cost Segregation Studies, Tax Engineered Studies or Section 179(d) Energy studies, as always do feel free to reach out to us.  We love hospitality!

P.S.  When you gut rooms, banquet halls, reception areas, restaurants, or other amenities for renovation — remember, they are fixed assets too… run them through disposal!  Otherwise, its money in the trash.

Hotels & Resorts: Fixed Asset Perspective

Personal story from Angie Bolton-Lyons, Senior Fixed Asset Consultant and Sage FAS Guru!

I was on vacation back in February at a beautiful resort – in a beautiful place. Most people would notice the gorgeous views (which I did) and all the elaborate decor. I however, being a fixed asset consultant for many years and knowing about the costs of movable assets, I noticed other things. Beautiful, expensive things. Lots of fixed assets!  I wondered to myself, has this resort ever performed a physical inventory of all these fixed assets? 

As I walked around this elaborate resort, I also noticed that a lot of renovations just finished and even more construction is about to begin.  Then I wondered… Did they take all those assets they just ripped out through a retirement study?  Or perhaps they did a thorough Cost Segregation Study after the original build out.  If that’s the case, then, they probably accounted for all those assets they tore down and disposed of them properly.  Thus showing on their balance sheet, property taxes, insurance, etc.  Hummm?

Off to my room to check in and check this place out more.  I continued to walk around and notice so many beautiful things… I wonder how much they paid for all this landscaping and I asked myself, “self, do they know that a lot of landscaping can actually qualify as personal property?”  After contemplating for a bit more, I noticed it was now Happy Hour! 

Since I love $5 Mai Ties and I’m not shy, I befriended my bartender.  After a ton of mindless chit chat (which I thoroughly enjoyed – mind you, I’m on vacation), eventually I asked him if their were any upcoming renovations happening soon.  He said, “well Angie in fact there is… see that fancy sushi restaurant over there?  This is the last week they are serving.  After it’s torn completely down, they are getting a complete million dollar re-build/renovation.  You better go eat there while the gettin is good.”  So you know what I thought?  Exactly (because obviously, I’m a nerd)… who is the Controller or CFO around here and can I please double-check with them to see if they are properly recording their disposal’s and rebuilding the most appropriate way to capture all the tax benefits they can?  How about a tax engineered cost segregation service?  Yikes!

I know my mind should be on my wonderful vacation, especially since it has been eight years since I’ve taken one.  However, I often think about all the hotels and other hospitality prospects and clients out there that have NEVER done a physical asset inventory, let alone a proper Cost Segregation and Valuation study.  They could be overpaying property taxes, not gaining all the tax benefits they have available to them and… could be under insured!  Three days after we left, a Tsunami hit.  Hope they were covered!

Always working and thinking about fixed assets – Angie Bolton-Lyons

Fixed Assets and Taxes – Improve and Pay Less

Managing your fixed assets can assist in freeing up some serious cash flow if done properly.  And everyone is looking for a little extra cash these days.  If your fixed asset manager is actually ‘owning’ their job, then maybe you are already resting nicely and benefiting from your extra cash.

Ways to improve your fixed asset schedules to capture tax savings and benefits:

  • Classify your fixed asset property type correctly: Real versus Personal.  A Cost Segregation Study is an EXCELLENT service to make sure you are doing just that.
  • Utilize all the Bonus Depreciation available if and when necessary.  Again, ensuring you are classifying your property correctly can help you gain additional bonus you may not be aware you had.
  • Perform a physical audit of your fixed assets.  Conducting a physical fixed asset inventory allows you to reconcile back to your balance sheet to write off those items that no longer exist.  Especially those with a netbook value!
  • Update your insurance!  After completing a physical asset inventory of your assets, revisit your insurance to see if you are overpaying (or even underpaying, should something happen).
  • Also after performing a physical inventory, you may be able to reduce your property taxes!  Maybe even think about getting a property valuation study — these days, property is worth less than it once was.  An official study could do just that…  reduce your property taxes.

There are many ways to better your workflow of your fixed assets.  The ones I share with you today, are the key ingredients to a successful, yet rewarding way to release some cash flow into your bottom line.  Who wouldn’t want some extra cash to increase business, hire another employee, provide raises to those who work more than a couple jobs within your organization!? 

Fun Fact: Recently, we have captured millions of dollars in cash flow through our physical asset inventories and cost segregation studies.  Our clients will be able to use these credits towards their Q1 2010 Tax Estimates.  Yee haa!

Paragon Expands Asset Valuation Services to Kansas City Area

Company hires Richard Gilbert to manage new office, providing asset valuation services, cost segregation studies, and fixed asset depreciation strategies. 

 Kansas City, KS – November 18, 2009 – Paragon Valuation Group (http://www.paragonvaluation.com/) has announced the opening of a new office based in Kansas City, Kansas, led by 25year industry veteran Richard Gilbert. Increased demand for asset valuation services, cost segregation studies, and fixed asset depreciation strategies has fueled unprecedented growth for the company. The expansion provides a regional base for serving the Paragon Valuation Group’s existing Central U.S. clients and for prospective new clients interested in improving cash flow through accurate and independent asset valuation strategies.  [Read More]
 
 Angie’s Fun Fact, number… “a lot”: everything Paragon does, releases cash flow into your piggy bank – not only paying for our awesome and valuable services… but provides your business with some ‘give’ in your budget.  Yes, even during these crazy economic times.  We ARE showing you the mon-ay! 

 

Cost or ‘Value’ Seg Studies

What is Cost or Value Segregation Studies and why should I care?

By definition, a cost segregation study is identifying personal property assets that are grouped with real property assets, and separating out personal assets for tax reporting purposes. 

A real world example:  when you build a building and everything associated with that building is generally categorized under a vague description and bulked together to become one fixed asset entry with a class of Real Property and depreciating on a straight-line method with a 39 year life.  However, after a true cost segregation study, most of the time (if properly executed) 20% to 60% can be reclassified into Personal Property and depreciated on a double declining balance with a much shorter recovery period – either 7 or 5 years!  Way better than 39 hu?

So why should I care?  Because silly, who wouldn’t want better control over their fixed asset line items and who wouldn’t want to recover more depreciation and uncover those assets that may qualify for additional bonus depreciation (Economic Stimulus Bill for an extra 50%)?  Bottomline of why — generate more cash flow in these ‘trying’ times and clean up your fixed assets! 

Why don’t more people take advantage of this study?  Generally, they are too concerned about paying for such a service, but in the end, this service actually PAYS for itself right off the bat!  Imagine if you will…. recognizing an overall 20% to 60% write-off on your fixed assets; still not convinced?  It’s MONEY in your pocket!

For those that don’t want to take my word for it….
My friend Wiki states:

In addition to providing tax relief, cost segregation can benefit businesses in a number of ways:

  1. Maximizing tax savings by adjusting the timing of deductions. When an asset’s life is shortened, depreciation expense is accelerated and tax payments are decreased during the early stages of a property’s life. This, in turn, releases cash for investment opportunities or current operating needs.
  2. Creating an audit trail. Improper documentation of cost and asset classifications can lead to an unfavorable audit adjustment. A properly documented cost segregation helps resolve IRS inquiries at the earliest stages.
  3. Playing Catch-Up: Retroactivity. Since 1996, taxpayers can capture immediate retroactive savings on property added since 1987. Previous rules, which provided a four-year catch-up period for retroactive savings, have been amended to allow taxpayers to take the entire amount of the adjustment in the year the cost segregation is completed. This opportunity to recapture unrecognized depreciation in one year presents an opportunity to perform retroactive cost segregation analyses on older properties to increase cash flow in the current year.
  4. Additional tax benefits. Cost segregation can also reveal opportunities to reduce real estate tax liabilities and identify certain sales and use tax savings opportunities.

Under certain circumstances, segregated assets may qualify for a special 30% bonus depreciation allowed by the Job Creation and Worker Assistance Act of 2002 or a 50% bonus depreciation allowed under the Jobs and Growth Tax Relief Reconciliation Act of 2003.

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