Savings

Article 01.11.2023 Dean Dorton

A cost segregation study is an analysis performed by trained professionals to identify property that should be classified as tangible personal property or land improvements, rather than real property that is depreciated over 27.5 or 39 years. This allows the taxpayer to identify property that can be depreciated over 5, 7, or 15 years instead of the 27.5 or 39 years that typically apply to real estate. This acceleration of deductions results in substantial tax savings benefits.

Cost segregation studies apply to both newly acquired or constructed property, leasehold improvements/fit-ups, and property that was placed in service in prior years (post 1986). For property placed in service in prior years, the IRS allows a “catch up” deduction in year 1 for the additional depreciation deductions that are identified in a cost segregation study that you were entitled to but did not claim in previous years. This can generate substantial tax savings in the first year of the study.

There is no limitation on the cost of property that is eligible for a cost segregation study. The benefit of a study for a smaller building will be less than that of a larger property, but may still be beneficial. We have worked with several industries to provide cost segregation studies including auto dealerships, banks, commercial and residential property owners, medical facilities, and manufacturing facilities.

Bonus depreciation and Section 179 expense elections allow taxpayers to write off 100% of qualified tangible property with a recovery period of 20 years or less. Thus, the 5, 7, and 15 year property that is identified in a study may qualify for this additional depreciation deduction that wouldn’t normally be identified if the property was being depreciated over 27.5 or 39 years. These tax incentives for 2022 make cost segregation studies even more beneficial for the current tax year as it applies to both newly constructed and existing properties. Similar tax incentives are also available for property placed in service in tax years 2008-2021. After 2022, bonus depreciation begins to phase out, with qualifying property getting an 80% bonus deduction in 2023 and reducing by 20% each year following 2023 until it sunsets in 2027.

One of Dean Dorton’s most recent cost segregation studies was performed on a $13.5 million retail shopping center purchased in 2021. That study generated $1,168,876 of tax savings in the first year. The present value of accelerated deductions (discounted at 7%) exceeded $722,032. The return on investment for this study was 95.5 to 1.

Dean Dorton uses an Indianapolis-based engineering firm to provide cost segregation studies to our clients. This engineering firm conducts studies that conform to the Cost Segregation Audit Techniques Guide issued by the IRS. They have reviewed over $3.8B of assets and have increased cash flow of over $300M. They have successfully defended all challenges brought forth by the IRS.

We work in tandem with your CPA, whether you are served by a large international firm, a regional firm, or a local accountant, to serve your best interests and save you money.

Brandi Gillen, CPA
Tax Associate Director
bgillen@deandorton.com • 859.425.7678

Article 02.18.2021 Dean Dorton

Written by Kaydee Ruppert, Accounting and Financial Outsourcing Manager

One of the greatest compliments that I’ve ever received was this – “You brought a humanity to our accounting department that I didn’t know could exist.” Wow was I floored! Even though I’ve moved away from that workplace, as I work with new clients, I carry a commitment with me to not let that guy down. Leading an exceptional accounting/business function and being viewed as human should not be mutually exclusive!

People who are drawn to nonprofit organizations tend to put their hearts and souls into their work. We challenge ourselves daily to find better ways to advance the mission and make a difference. This common mission is our compass, providing direction as we conduct the business of our organization. We all have this in common and that’s a powerful truth to keep front of mind. When frustration creeps, remembering that we stand on this significant plot of common ground can make all the difference.

The accounting/business function should be like air for your organization. It’s necessary, life-giving, and can even be refreshing. If the air is stale and distracting, it’s difficult for the people in the room to give their best attention to the mission. Accounting information should be simple, straightforward, and relevant to your organization. As accounting and finance people, it’s our job to listen actively and unobtrusively to the whole room and open windows as needed, even before we’re asked to do so. With the financial basics taken care of, leadership can focus on strategy and outcomes instead of compliance.

A common problem in nonprofit accounting is clutter. Many nonprofit organizations don’t have the budget to ideally staff a best-practice accounting department, so instead, they tap individuals better suited for program or admin work to perform multiple roles. These individuals do the best they can, but often create financial reports akin to indecipherable hieroglyphics. Make time at regular intervals to step back and ask yourself if your financial process is effective for the leaders in your organization. Is your accounting function supporting your organization’s management, or are you expecting management to bend to the accounting function?

Managing the calendar is a challenge for us all, but follow through is an essential component in trust. Reports need to be available when their users need them, not when it’s most convenient for the accounting team. Identify the barriers to follow-though and tackle them systematically. Simple recognition of the importance of being dependable goes a long way in the authentic development of a team.

Inevitably we all make mistakes, we all miss deadlines, and we all occasionally miscalculate the importance of an ask to the person doing the asking. When this happens, biology takes over and suddenly you’re enveloped in “fight or flight” adrenaline. Pause, but don’t freeze. Resist becoming defensive or burrowing into your office shell. Seize on these situations as opportunities to demonstrate humility and your commitment to continuous improvement. Be quick to apologize and eager to learn. That vulnerability is exactly what makes us human. And once you’re assured status in the human race, you’ll have a much easier time getting things done well!

I would love to talk to you about your accounting and finance function. I have over 25 years of accounting, finance, and administrative leadership experience in the nonprofit sector. It is my passion and I’m here to help.

As a manager in Dean Dorton’s Financial & Accounting Outsource team, Kaydee Ruppert puts the humanity in accounting for numerous nonprofit organizations and ensures they have the financial data they need to advance their missions in our communities.

Kaydee Ruppert, CPA, MSA
Accounting and Financial Outsourcing Manager
kruppert@deandorton.com • 859.425.7730

Article 06.16.2016 Dean Dorton

With healthcare costs continuing to climb, tax-friendly ways to pay for these expenses are more attractive than ever. Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs) and Health Reimbursement Accounts (HRAs) all provide opportunities for tax-advantaged funding of health care expenses. But what’s the difference between these three accounts? Here’s an overview:

HSA
If you’re covered by a qualified high-deductible health plan (HDHP), you can contribute pretax income to an employer-sponsored HSA — or make deductible contributions to an HSA you set up yourself — up to $3,350 for self-only coverage and $6,750 for family coverage for 2016. Plus, if you’re age 55 or older, you may contribute an additional $1,000.

You own the account, which can bear interest or be invested, growing tax-deferred similar to an IRA. Withdrawals for qualified medical expenses are tax-free, and you can carry over a balance from year to year.

FSA
Regardless of whether you have an HDHP, you can redirect pretax income to an employer-sponsored FSA up to an employer-determined limit — not to exceed $2,550 in 2016. The plan pays or reimburses you for qualified medical expenses.

What you don’t use by the plan year’s end, you generally lose — though your plan might allow you to roll over up to $500 to the next year. Or it might give you a 2 1/2-month grace period to incur expenses to use up the previous year’s contribution. If you have an HSA, your FSA is limited to funding certain “permitted” expenses.

HRA
An HRA is an employer-sponsored account that reimburses you for medical expenses. Unlike an HSA, no HDHP is required. Unlike an FSA, any unused portion typically can be carried forward to the next year. And there’s no government-set limit on HRA contributions. But only your employer can contribute to an HRA; employees aren’t allowed to contribute.

Questions? We’d be happy to answer them — or discuss other ways to save taxes in relation to your healthcare expenses.

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