Cost segregation study is a vital tax-saving tool that helps to reduce current income tax liabilities and increase near-term cash flow. And since the process can be highly complex, individuals and companies usually outsource the services from the cost segregation specialist. The study done by the experts offers an independent third-party analysis that is capable of withstanding the IRS review.
But again, not all the cost segregation specialists are created equal. So, before you outsource your cost segregation study needs, you must stay vigilant and invest in one who is capable of aligning their services as per your expectations.
Once you shortlist a few reliable specialists, meet them in person or call them to raise the following questions to determine if the specialist is well-equipped to deliver an audit-ready study as well as maximize your ROI.
1. Will there be an ROI related to the cost segregation study?
Cost segregation is a beneficial tax strategy that can aid in increasing the ROI of your business.
But, in order to experience the benefit, you may require investing both time and money into the process. When the cost segregation study is prepared with accuracy and completeness, it can maximize the cash flow because the taxes are deferred on the assets via accelerated depreciation.
Here are the benefits you will experience:
• A fast uptick in cash flow
• Lowered existing tax liability
• Gain the ability to defer taxes and
• Reclaim allowable historic depreciation deductions.
Your specialist must assist in generating higher returns on your investment.
2. Will the cost segregation study prove to be a red flag to the audit?
Keep in mind; cost segregation does not accelerate tax credits but the process of deductions.
Usually, cost segregation studies get audited because they are pulled along with another tax credit or incentive program that falls under IRS’s evaluation. Also, cost segregation isn’t an R&D incentive or a Tier 1 issued by the IRS.
So, for peace of mind, you need to make sure that the cost segregation specialist conducting the analysis provides you a standalone, audit-ready deliverable.
When looking for a tax consultant who can perform a cost segregation study, ensure to ask client references that have been through the IRS audit to get proof that the deliverables offered by them never fall into question.
3. Do you have expertise beyond tax segregation?
The cost segregation expert you chose may have exclusive ability to conduct the study from the construction of engineering perspective but may have limited tax expertise. Limited expertise means you will only get benefits from deduction, especially those related to the depreciating asset act.
So, when outsourcing the cost segregation study, ensure the person or team you are working with has experience in accounting, construction engineering, and all major aspects of corporate tax incentives.
With a well-rounded team by your side, the study will reveal tax-saving opportunities along with depreciating assets for cash flow.
4. Do you have experience in an industry similar to my business?
Keep in mind that every industry presents a different set of cost segregation opportunities and areas of exposure. So, it is important to ask the tax consultant what type of clients they usually offer their services to.
If the tax consultant says that they have experience working with clients similar to your industry, then you can stay assured that they will be able to understand the applicable cost and offer guidance related to the asset classification.
If the tax consultant doesn’t have enough expertise but has been serving in the industry for a few years, then you can always work with them. After all, the specialists are required to customize the strategies. If you offer the right details and let them know your expectations, they may draft studies as per your needs.
5. What will be the final cost segregation study look like?
The deliverable from the tax consultant can uncover red flags linked to how the study was conducted. For instance, if the deliverable doesn’t define whether a site visit was performed for analysis, then the IRS may not signify such deliverable as a “quality study.”
So, if possible, ask various specific questions related to their cost segregation techniques and methodologies to understand what level of audit support does the deliverable offered by them provides.
If you find that their deliverables don’t fall under “quality study,” then you need to look for another specialist, or else you will end up investing money and time for nothing.
Over to you
Raising these questions will give you a clear idea of the work ethics followed by the cost segregation specialist.
Keep in mind, the specialist you want to work with must take a strategic and customized approach to maximize your tax savings through cost segregation. Work with Lindon Engineering to obtain streamlined analysis and study.