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Cost Segregation in an Uncertain Tax Environment

05/23/2017

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Guest blogger: David McGuire, McGuire Sponsel

Another tax season has passed and it is time to start thinking about planning for the next tax deadline. In the current environment, any discussion regarding tax planning must acknowledge that the tax code’s future is unknown. Since the election Tax Reform has been a major topic of conversation both within businesses and within the government. However, as of the writing of this article, nothing has been done. With this uncertainty in the tax code, how do we plan for the future?

In order have a conversation we need to start with what we know. Right now we know that comprehensive tax reform is going to be harder than many have acknowledged. While it sounds good in campaign slogans, tackling the complexities of the tax code is more difficult in practice. While there is still talk of tax reform, the odds of a full overhaul of the tax code look less likely. That is not to say nothing will happen, the expectation is that some adjustments to the tax code will be made, but the scope of these changes is still uncertain. So with this uncertainty where do we go from here?|

The easiest answer to this question is to continue as if nothing was to change. We currently know the fundamentals of the existing tax code. Many of those fundamentals will not change even under a comprehensive plan. The basics of the current tax system have been in place since the mid-1980s. Taxpayers and tax preparers should continue working within this system until the system changes.

Taxpayers should also look for potential tax rate adjustments. There is a very high chance that rate adjustments will occur in the coming years. Determining how to pay for this is still a debate, but most politicians believe that a rate adjustment should be made moving forward. This potential rate adjustment allows for taxpayers to take advantage of timing adjustments and potentially turn them into permanent savings.

Traditionally, a cost segregation or depreciation study would accelerate deductions into the current tax year. This allows for a taxpayer to take advantage of the time value of money by getting deductions immediately. If a rate adjustment happens in the future, these timing savings become permanent savings. If a taxpayer can accelerate deductions into a tax year with a 38 percent versus a 35 percent or lower rate, the savings is no longer a timing difference, it becomes a permanent tax savings.

Even if a taxpayer has already filed a 2016 return, a depreciation analysis can be completed until the extension date. The IRS will allow us to move those deductions into the 2016 return with a 3115 up until the extension date, even if the return has already been filed. It is critical, however, that it gets reviewed in a timely fashion.

The LBMC/McGuire Sponsel team will continue to follow Tax Reform and legislation. Feel free to reach out to your LBMC representative to discuss any concerns or questions you might have regarding this or any other topic.

David McGuireGuest blog from the professionals of McGuire Sponsel, an LBMC strategic partner delivering specialized tax and advisory solutions. They approach their work as trusted resources to CPAs, enhancing those important annuity relationships through innovative tax strategies.

Posted in: Financial Solutions, Tax
Tagged with: Business Tax