If you are like most business owners, you just completed the arduous task of filing your personal, S-Corp, LLC and Partnership tax returns for the IRS and the Franchise Tax Board…
Congratulations. You made it through another test of your patience and anger management skillset. 2018 was a real humdinger of a year, as you and your tax advisors were forced to navigate the complexities of the Tax Cuts and Jobs Act, aka tax reform for the first time. We hope that you were able to take full advantage of the new law and kept more of your hard-earned cash. You deserve it.
The good news, besides having the whole process in your rear view mirror, is that you’ve been meeting with your CPA/tax advisor, your books are clean and organized and you know where you stand financially. That makes the fourth quarter a great time to evaluate your situation and initiate action to keep even more for yourself in 2019.
Your facility, whether you lease or own it, has tax consequences. The Tax Cuts and Jobs Act has numerous provisions for accelerated depreciation and/or immediate expensing of business equipment, interior improvements and major building components. If you own your building, the new law also allows you to accelerate depreciation on capital replacements including your roof, HVAC system and fire/life safety equipment. Since many of these begin to phase out over the next several years, it is critically important for you to be fully informed so that you can exploit them to your full advantage.
A while back we brought you a post on Your Building as Profit Center that discussed the idea of reducing operating expenses as a way of increasing the bottom line of your business or the performance of your commercial property investment. For owner/users, putting the new tax law to your full advantage is an important way to do just that. If you replace your tired old HVAC units with a new energy-efficient HVAC system, you can write the whole thing off in year one and enjoy lower maintenance costs for years to come. If you decide to sell the building, you will have enhanced its value by eliminating an item of deferred maintenance any prospective buyer would take into account.
There are numerous other examples, but you get the point. And, the fact that you are now fully up to date on your financial situation makes this the perfect time to look into new strategies that could improve your bottom line. Just a couple of months ago we discussed the value of getting a real estate check-up to make sure are on the right track in terms of your facilities. What we are talking about here is the next step in that process. It’s like going back to the doctor to discuss the results of all the tests he ordered at your last visit. This time, the results are in and the two of you can discuss a course of action, based on the facts, to ensure that you are on a healthy path.
Whether the subject is your physical health, personal well-being or the viability of your business, a proactive approach will help you optimize results. That includes planning for tougher times, as all aspects of our lives tend to run in cycles. With that in mind, have you planned for tougher times ahead as it relates to your business? If either the economy in general, or the real estate market in particular, were to head into a correction phase, how would that impact your business? Developing a “Plan B” is a low or no- cost item, but not having one could be a real game changer if you are caught unprepared.
Lately, we are seeing more of our clients take a harder look at exiting highly appreciated assets to create liquidity and realize value appreciation. They like the idea of building up cash reserves even if a significant tax event results from the sale of their real estate. If you own your building and it still works from an operational standpoint, you might consider selling it to an investor and leasing it back. This allows you to pocket a windfall profit without moving your company.
Your after-tax proceeds can be used to invest in business growth, prepare for retirement or to pursue other interests. You might want to take a look at our series called When is More Just More where we dive into different perspectives on the value of asset accumulation.
The bottom line here is that this is the time where you understand your own bottom line better than at any other time of the year. So, why not make the most of it? If we can help you on the real estate side of the equation, just give us a call. We are here to help.