Perspectives on Cost Segregation Studies

The benefits of offering Cost Segregation services to your current clients

Offering Cost Segregation services to your clients gives CPAs a competitive advantage over many firms who don’t have a strategic relationship with a firm that specializes in providing engineering based Cost Segregation Studies or a firm that can produce these studies in-house. It allows you to compete on a level at which only larger accounting firms typically can compete. It also puts you and your firm in a better position to retain your more successful and growing clients. As these clients grow, they will inevitably require additional more sophisticated services and one that will top the list is Cost Segregation Services.

A simple and effective way to offer Cost Segregation Studies to potential new clients

These studies make an excellent talking point when approaching potential clients. In competing for their business, you can go one step further by offering to help an eligible prospective client to increase their cash flow through a Cost Segregation Study. If a potential client is shopping around for a new CPA, then offering them this additional service will differentiate you and put you ahead of your competition.

Partnering with a firm specializing in engineering based Cost Segregation Studies is one of the best options for small to medium size accounting firms where it is not economical to employ a full time engineer.

How to determine the best time for a client to take advantage of a Cost Segregation Study

The factors to be considered when determining the best time for a client to use accelerated depreciation are their tax bracket for this year and their forecasted tax bracket for the next five years.

Undoubtedly, your clients must already be in a certain tax environment for a Cost Segregation Study to make sense. What I mean by “a tax environment” is that your client has to be in a certain tax position to be able to take advantage of the benefits. If they are in a situation where they are already incurring significant losses, then perhaps doing the study might not make sense at this point, especially if they have to carry-forward losses that you think they’ll be able to utilize for the next several years. That being said, I think it’s really important to try to forecast what their tax situation is going to be in the next four years. You may want to go ahead and complete the Cost Segregation Study in order to have that deduction available if you anticipate a significant change in profitability for that client. Tax brackets and things of that nature have to be assessed on a client-by-client basis.

Why you should never do an engineering-based study on your own

As accountants, we do not have the expertise to complete an engineering-based Cost Segregation Study properly. It’s that simple. We’ve all run into CPAs who say, “I have the necessary knowledge to accelerate depreciation myself or I have allocated the assets in the way I believe that they should be allocated.” I have enough experience working with The Concord Group to understand that as accountants, we don’t have the knowledge and we are not able to properly allocate all these assets correctly. If we try to do these studies on our own, we are clearly going to leave a lot of tax savings on the table that our clients could have taken advantage of, had we done an engineering-based study. Additionally, we are also opening ourselves up to a huge risk if audited. Through partnering with a reputable firm specializing in Cost Segregation they take on the burden of this risk in the event of an audit. In an engineering-based study, experienced estimators and engineers detail the various construction components that can be re-categorized. Unless we understand the construction industry, which as accountants none of us do, we simply cannot find all of the tax savings that an engineering-based study can. So clearly we would not be maximizing the benefits for our clients. In addition to that, as an accountant, I do not believe that members of our profession could produce a study that would stand up under IRS investigation. I am completely confident that the caliber of studies by The Concord Group would hold up under IRS scrutiny. They have never lost an asset to the IRS.

David J. Brown, CPA is the owner of KGR Brown and Associates P.C., a certified public accounting firm, whose concentration for the last 20 years has been in corporate, partnership and non-profit taxation. David is a member of the American Institute of Certified Public Accountants and the Illinois CPA Society. The firm has significant experience with cost segregation study principles and techniques.

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