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Month: September 2020

How Can Cost Segregation Help Property Owners?

The COVID-19 pandemic has really become a thorn in business. Businesses from all over the world were ordered closed at the peak of the pandemic in order to curtail the spread of the virus. Some of those businesses were forced to permanently close because it was just hard to recover from it. The businesses that survived would have to adapt to the new normal.

Some businesses would need to renovate their establishments in order to cater to the new normal. In the case of restaurants, for example, people are encouraged to eat outside because of the findings that there is a higher risk of virus spread indoors. For most businesses, additional equipment may be purchased to boost online business method.

Cost segregation will really help out businesses save more money.

How does this work?

Properties will depreciate. However, a lot of the properties have a depreciation term of around 39 years. That means that your taxable items wouldn’t decrease until 39 years later. That’s what cost segregation is about. It will allow you to allocate costs at a lower depreciable life.

A property owner could depreciate some properties to just five years or seven or 15. The standard is from 27.5 to 39 years. Even reducing the depreciable life from 39 years to 27.5 could already reduce much of a person’s taxable income.

The process is called cost segregation study. In a business establishment, for example, there are various assets inside the building that can be greatly depreciated by years.

Here’s the best news for business owners: assets purchased from September 28, 2017 to December 31, 2022 have better standing in terms of property depreciation. In the mentioned five years, assets could be depreciated during the first year of ownership. Experts calculate tax savings to be between 33% and 66%.

Misconceptions

There are some issues raised against cost segregation. One common misconception is that it doesn’t work on short-term assets. That’s actually a myth. The property an entrepreneur purchases doesn’t have an intrinsic value yet. It is only when it is used that the market value is added to it. Segregating the assets allows the entrepreneur to determine the values of each by knowing their depreciation lives.

Another misconception is that there is too much trouble doing the cost segregation study and the result is not that significant. That’s a terrible way of looking at it. It is a common process that people work hard to gain something. With cost segregation, it’s not even that hard, especially if you employ the right people to do the job.

The Internal Revenue Service audit technique guide implies that experience and expertise matter when it comes to cost segregation study. There are also various methodologies that can be employed in the study. Choosing the right one will help business owners maximize benefit.

Cost segregation is a proven tax strategy of accelerating depreciation results in order to reduce taxable income. The strategy will allow every business owner to increase their cash flow.

Are You Eligible for Interest Check This Year?

Taxes should be filed on April 15 of every year. However, because of the COVID-19 pandemic, it was understandable that a lot of people failed to file their taxes on time.

The Internal Revenue Service (IRS) moved the due date this year to July 15 to give way to those affected by the pandemic. Those who filed their taxes after April 15 are in luck because they would be getting extra money from the government. It is referred to as an interest check.

Let’s discuss this unusual extra money this year: Every year, the IRS has to pay interest on refunds because the federal government takes some time to actually process them. The IRS admitted that as of June, it has a backlog of 4.7 million returns.

According to the IRS, the accrual period for this interest check will start on April 15. This means that if you filed your tax return later, then you are going to get an interest check. The interest payments will or might be sent as a separate check from the actual refund. Of course, with the backlog, you might receive your refund later. This means additional interest.

Stimulus payment

Note that this is different from the stimulus payment from the government. The Coronavirus Aid, Relief and Security Act, which is wittily referred to as the CARES Act, is a law signed by President Donald Trump to give financial assistance to the millions of Americans affected by COVID-19.

Don’t be confused considering that the stimulus check is also issued by the IRS and is based on a person’s adjusted gross income. If you already received a stimulus check, then expect another check coming. Of course, that is granting that you are eligible for it.

If you are a taxpayer who didn’t receive a refund by April 15, then the months that you didn’t get it will incur an interest. The total amount of the interest will be sent to you as a second check.

Wondering how much you will get?

The IRS will pay an annual interest of 5% that will be compounded each day until June 30. By July 1, the interest rate would have decreased to just 3%. What would this entail? This means that for every $1,000 that should have been refunded to you, you will get 14 cents as interest every day from April 15 to June 30. This would decrease to just 8 cents every day starting on July 1.

The IRS, though, is yet to announce the date of the release of the interest checks. It is hoping that it will be out later in the summer.

Of course, the interest is taxable. It will be part of your taxable income in your 2020 tax return. At least, it will be available at a time when a lot of people really need the money. COVID-19 affected a lot of people and not just in terms of health. A lot of people also lost their jobs while some experienced shorter work hours.

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