The four-part test is here to help companies like you limit your liabilities in research. Find out how you can qualify for R&D tax credits.
For those working in the investment real estate business, a well-implemented cost segregation study will quickly be shown to accelerate depreciation and benefit your financial situation. By undergoing a study, real estate owners will take advantage of accelerated depreciation deductions and shelter taxable income. Doing so will immediately reduce the amount of income tax that the company or individual will have to pay that year, improving cashflow. For investors with estimated quarterly payments, these studies can also help defer the payment of their income taxes.
HOW DOES A COST SEGREGATION STUDY WORK?
A cost segregation study is a rigorous process where a cost segregation engineer analyzes real estate assets and identifies property with shorter depreciation life (personal property) from the real property , which is what creates accelerated depreciation benefits.
The goal of each cost segregation analysis is to separate holdings into distinct categories, or asset classes, that have different depreciable recovery periods. The four main categories and their typical depreciation lives are as follows:
- Tangible personal property, which are non-structural components of a building (furniture, fixtures, carpeting, window treatments, and specialized plumbing and electrical components, for example) typically has a five to seven year depreciable lifespan.
- Land improvements are components found outside a building’s footprint (sidewalks, paving or landscaping) depreciate typically over fifteen years.
- Buildings depreciate over 27.5 or 39 years depending whether the type of property is residential rental or commercial.
- The land itself, which is not depreciable.
THE IMPORTANCE OF A GOOD CONSULTANT
Cost segregation studies involve a lot of detailed knowledge of the regulations surrounding all tax incentive rules, so finding the right provider to guide you through each step is very important. The cost segregation consultant will find every component of your property that can be legally considered to be shorter life property and reclassify those assets to generate more depreciation deductions for income tax purposes.
Once the study is finalized, the client will be provided with the information they need to calculate the accelerated depreciation deductions for income tax purposes. The cost segregation report will also act as supporting documentation in the possibility of any IRS audit.
In general terms, any piece of commercial real estate that was acquired, built, or put into service after 1986, including acquisitions, construction, building, or improvements- will be eligible for cost segregation.
At Incentax, we help companies gain access to money-saving tax incentive programs at both the federal and state level. Our team is entirely made up of tax incentive experts and engineers, that guarantee a high level of quality in our work by offering audit support for free. For more information about our services or processes, contact us today!
There are many valuable economic incentives offered by the government to help businesses reduce current and/or future tax liabilities. One incentive program in particular, known as the Research and Development Tax Credit, rewards businesses for their investment in domestic research. Those that qualify can then use the additional source of revenue to stay competitive, hire additional employees, and enhance day-to-day operations.
WHAT IS THE R&D TAX CREDIT PROGRAM?
The R&D Tax Credit was first introduced in 1981 as a way to encourage innovation throughout the economy, create and retain technical jobs and increase global competitiveness. It is available to any business that develops new or improved products, processes or software systems. This means that businesses of all sizes and in a variety of industries can be eligible to claim this tax credit, not just major corporations with research labs. Taking advantage of the R&D Tax Credit can help taxpayers alleviate some of the financial burden in trying to remain competitive in their respective industries.
WHAT ACTIVITIES QUALIFY?
Companies that invest money, resources and time towards improving a product, technique, formula, process or software, or inventing of a new product or process, likely qualify. Below are common qualifying research and development activities:
- Designing or developing new or improved products, processes, or formulas
- Developing new or improved software technologies
- Evaluating and testing new concepts or materials
- Developing models or protypes
- 3D or CAD modeling
- Beta testing
HOW DOES THE R&D TAX CREDIT WORK?
The R&D Tax Credit can apply to any business that incurs expenses for performing qualified research activities. The following are the types of qualified research expenses that the credit is comprised of:
- Wages paid to employees directly working on, supporting, or supervising the R&D process
- Supplies consumed during the R&D process (ie, for prototyping and testing purposes)
- Payments made to outside contractors hired by the taxpayer to assist in the development process
RECENT CHANGES TO THE R&D TAX CREDIT
Although billions of dollars worth of R&D tax credits have been claimed, many taxpayers still faced hurdles in being able to take advantage of the tax credit despite having qualifying activities and expenses. This was mainly due to the fact that companies losing money could not monetize the credit, and that the credit could only offset regular tax liability. When the PATH Act was signed in December 2015, the R&D tax credit was not only made permanent, but it also removed some of the barriers that many start-up companies faced to claim the tax credit.
The PATH Act now allows eligible small businesses to use up to $250,000 of R&D credits annually against payroll tax liability.
WORKING WITH INCENTAX
Staying competitive by developing new or improved products or software systems can be extremely expensive and time consuming for businesses. Such innovations often fail, leaving companies with no return on their investment. By claiming the R&D tax credit, businesses are able to alleviate some of the financial burden associated with such risky initiatives.
It is important to mention that maintaining documentation related to a taxpayer’s R&D activities can form the basis of a successful R&D credit claim. Therefore, it is important to work with tax credit professionals like Incentax who can assist with the process.
Contact us today to conduct R&D study for your business.