Corporate Tax Planning in a pre-Trump Regime

For many businesses and business owners, the outcome of the 2016 election could be quite rewarding. President-elect Donald Trump proposed $6.2 trillion in tax cuts over the next decade. While it remains uncertain as to whether Trump can get such large tax cuts through Congress, even one controlled by the GOP, Republicans remain committed to overhauling the U.S. tax system in a manner that they think will help grow the economy. Overall, some sort of tax reduction seems inevitable.

In years where taxpayers expect tax rates to decrease in future tax years, the standard advice is to accelerate deductions into the current year while defer income until future years. Examples include making major equipment purchases in the current tax years while delaying invoicing of clients until the next tax year. With a tax rate differential, these planning techniques yield permanent tax savings. At ICS Tax, LLC, we are very experienced with tax planning opportunities to accelerate deductions. While the benefits from the time value of money are substantial, permanent tax savings make these planning opportunities even more valuable. Below are some ideas:

• Cost Segregation/Individual Asset Review – Commercial buildings are depreciated slowly over 39 years. A cost segregation study carves out components from buildings that qualify for more rapid depreciation, such as land improvements and personal property. Likewise, individual assets are often inappropriately depreciated building assets, such as process-related plumbing, electrical, and ventilation systems. This study identifies assets qualifying for more rapid depreciation.

• §179D Energy Efficient Commercial Building Deduction – Taxpayers who construct new buildings or make improvements to existing ones can take an immediate deduction of up to $1.80/SF for investments in efficient lighting systems, HVAC and hot water systems, and the building envelope.

• Capital to Expense Studies – The new Tangible Property Regulations allow taxpayers to retroactively review expenditures that were capitalized but qualify as repair and maintenance expenses, such as replacing roof membranes, resealing parking lots, and replacing of HVAC components.

• Retirement Studies/Partial Dispositions – Taxpayers often have ‘ghost assets’ in their fixed asset systems, such removed roofs and HVAC components. A retirement study identifies these assets, allowing taxpayers immediately deduct the remaining undepreciated basis. Similarly, taxpayers who make improvements to their facilities can immediately deduct the cost of the removed building components and to instantly write-off undepreciated basis amounts.

To learn more about these tax planning ideas and several more, please contact an ICS Tax representative.

Author: Alexander Bagne, JD, CPA, MBA, CCSP. Contributing Author: Mike Piper, LEED AP