The past few years have brought considerable changes to the tax codes. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Tax Cuts and Jobs Act (TCJA), and Energy Policy Act (EPACT) offer immense opportunities for companies to accelerate or increase fixed asset depreciation and recover overpaid taxes from previous years.
If applied wisely, they can help to reduce tax liability. This kind of savvy management of fixed assets can provide immediate increased cash flow, which enables reinvestment in the business. As you and your tax team evaluate how to best utilize these tax provisions, here are four key tax strategies to generate cash flow.
Strategy #1 – Act now, before these tax savings go away.
The tax depreciation provisions in the CARES Act, TCJA and EPACT were designed to stimulate specific types of spending and investments. Each of these tax codes has expiration dates, with the exception of the EPACT’s 179D tax deduction that was recently made permanent. However, the 100% Bonus Depreciation provision will be phased out beginning in 2023, until it is completely gone in 2027.
It’s said that the only thing that’s certain in life is death and taxes. Well, it’s also certain that tax laws are always changing. What’s here today could be gone tomorrow, so it’s best not to wait.
Strategy #2 – Overpaid taxes can be refunded for immediate cash flow.
Employing a Cost Segregation Look-Back Study, a valuable, often overlooked tool for companies to recover overpaid taxes – whether it’s due to tax law changes or overlooked personal property depreciation opportunities. The study identifies misclassified property and reclassifies these assets, allowing you to depreciate them over a shorter tax life.
For commercial buildings, the depreciable life is reduced from 39 years to a much shorter 5, 7 or 15 years, depending on the asset class – or allowable 100% bonus depreciation. Based on the information provided by the cost segregation study, you can update your existing depreciation methods and recover overpayments. Best of all, there’s no need to wait until you file your year-end taxes.
Strategy #3. Employ a dedicated fixed asset management software solution.
Automating your fixed asset depreciation methods, processes and calculations enables you to quickly and easily classify and reclassify large groups of assets, and take advantage of allowable tax depreciation to the full extent of the law.
Our blog on How to Update QIP Assets in Sage Fixed Assets illustrates just how simple it can be to apply changes to your tax depreciation schedules versus updating numerous spreadsheet calculations – and hope that they’re correct! Using the Sage Fixed Assets Bulk Edit feature, you can easily apply updates due to changes in tax codes or reclassifications based the cost segregation study results.
Strategy #4 – Work with experienced, qualified professionals.
Tax laws are complicated and have nuances that are often overlooked. Paragon’s cost segregation professionals have valuable engineering experience, and are able to fully understand how to distinguish complex and specialty building and fixed asset functions. This provides you with detailed analyses that can yield significantly higher tax savings.
Dedicated, robust fixed asset solutions such as Sage Fixed Assets offer myriad features that can simplify even the most complex company’s fixed assets. A Sage certified consultant such as Paragon can demonstrate and help you evaluate the different SFA modules and how they would work for your company. You can also jump-start and maximize your software investment by taking advantage of Paragon’s turnkey fixed asset management services.
Bonus Strategy – Contact Paragon
Smart thinking about fixed assets equals immediate cash flow – if you take advantage of the current tax laws available. It’s like putting money in the bank. Quickly.
To learn more about how you can apply these tax strategies to generate cash flow for your business, contact our fixed asset experts.