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Archives for July 2019

It’s a good time to buy business equipment and other depreciable property

July 18, 2019 by Tarik Benkirane

There’s good news about the Section 179 depreciation deduction for business property. The election has long provided a tax windfall to businesses, enabling them to claim immediate deductions for qualified assets, instead of taking depreciation deductions over time. And it was increased and expanded by the Tax Cuts and Jobs Act (TCJA).

Even better, the Sec. 179 deduction isn’t the only avenue for immediate tax write-offs for qualified assets. Under the 100% bonus depreciation tax break provided by the TCJA, the entire cost of eligible assets placed in service in 2019 can be written off this year.

Sec. 179 basics

The Sec. 179 deduction applies to tangible personal property such as machinery and equipment purchased for use in a trade or business, and, if the taxpayer elects, qualified real property. It’s generally available on a tax year basis and is subject to a dollar limit.

The annual deduction limit is $1.02 million for tax years beginning in 2019, subject to a phaseout rule. Under the rule, the deduction is phased out (reduced) if more than a specified amount of qualifying property is placed in service during the tax year. The amount is $2.55 million for tax years beginning in 2019. (Note: Different rules apply to heavy SUVs.)

There’s also a taxable income limit. If your taxable business income is less than the dollar limit for that year, the amount for which you can make the election is limited to that taxable income. However, any amount you can’t immediately deduct is carried forward and can be deducted in later years (to the extent permitted by the applicable dollar limit, the phaseout rule, and the taxable income limit).

In addition to significantly increasing the Sec. 179 deduction, the TCJA also expanded the definition of qualifying assets to include depreciable tangible personal property used mainly in the furnishing of lodging, such as furniture and appliances.

The TCJA also expanded the definition of qualified real property to include qualified improvement property and some improvements to nonresidential real property, such as roofs; heating, ventilation and air-conditioning equipment; fire protection and alarm systems; and security systems.

Bonus depreciation basics

With bonus depreciation, businesses are allowed to deduct 100% of the cost of certain assets in the first year, rather than capitalize them on their balance sheets and gradually depreciate them. (Before the TCJA, you could deduct only 50% of the cost of qualified new property.)

This break applies to qualifying assets placed in service between September 28, 2017, and December 31, 2022 (by December 31, 2023, for certain assets with longer production periods and for aircraft). After that, the bonus depreciation percentage is reduced by 20% per year, until it’s fully phased out after 2026 (or after 2027 for certain assets described above).

Bonus depreciation is now allowed for both new and used qualifying assets, which include most categories of tangible depreciable assets other than real estate.

Important: When both 100% first-year bonus depreciation and the Sec. 179 deduction are available for the same asset, it’s generally more advantageous to claim 100% bonus depreciation, because there are no limitations on it.

Maximize eligible purchases

These favorable depreciation deductions will deliver tax-saving benefits to many businesses on their 2019 returns. You need to place qualifying assets in service by December 31. Contact us if you have questions, or you want more information about how your business can get the most out of the deductions.

© 2019

Filed Under: Tax Planning

Your succession plan may benefit from a separation of business and real estate

July 10, 2019 by Tarik Benkirane

Like most businesses, yours probably has a variety of physical assets, such as production equipment, office furnishings and a plethora of technological devices. But the largest physical asset in your portfolio may be your real estate holdings — that is, the building and the land it sits on.

Under such circumstances, many business owners choose to separate ownership of the real estate from the company itself. A typical purpose of this strategy is to shield these assets from claims by creditors if the business ever files for bankruptcy (assuming the property isn’t pledged as loan collateral). In addition, the property is better protected against claims that may arise if a customer is injured on the property and sues the business.

But there’s another reason to consider separating your business interests from your real estate holdings: to benefit your succession plan.

Ownership transition

A common and generally effective way to separate the ownership of real estate from a company is to form a distinct entity, such as a limited liability company (LLC) or a limited liability partnership (LLP), to hold legal title to the property. Your business will then rent the property from the entity in a tenant-landlord relationship.

Using this strategy can help you transition ownership of your company to one or more chosen successors, or to reward employees for strong performance. By holding real estate in a separate entity, you can sell shares in the company to the successors or employees without transferring ownership of the real estate.

In addition, retaining title to the property will allow you to collect rent from the new owners. Doing so can be a valuable source of cash flow during retirement.

You could also realize estate planning benefits. When real estate is held in a separate legal entity, you can gift business interests to your heirs without giving up interest in the property.

Complex strategy

The details involved in separating the title to your real estate from your business can be complex. Our firm can help you determine whether this strategy would suit your company and succession plan, including a close examination of the potential tax benefits or risks.

© 2019

Filed Under: Uncategorized

Devote some time to internal leadership development

July 5, 2019 by Tarik Benkirane

 

 

 

 

 

 

 

 

Many factors go into the success of a company. You’ve got to offer high-quality products or services, provide outstanding customer service, and manage your inventory or supply chain. But there’s at least one other success factor that many business owners often overlook: internal leadership training and development.

Even if all your executive and management positions are filled with seasoned leaders right now, there’s still a major benefit to continually training, coaching and mentoring employees for leadership responsibilities. After all, even someone who doesn’t work in management can champion a given initiative or project that brings in revenue or elevates the company’s public image.

Ideas to consider

Internal leadership development is practiced when owners and executives devote time to helping current managers as well as employees who might one day be promoted to positions of leadership.

To do this, shift your mindset from being only “the boss” to being someone who holds an important responsibility to share leadership knowledge with others. Here are a few tips to consider:

Contribute to performance development. Most employees’ performance reviews will reveal both strengths and weaknesses. Sit down with current and potential leaders and generously share your knowledge and experience to bolster strong points and shore up shortcomings.

Invite current and potential leaders to meetings. Give them the opportunity to participate in important meetings they might not otherwise attend, and solicit their input during these gatherings. This includes both internal meetings and interactions with external vendors, customers and prospects. Again, look to reinforce positive behaviors and offer guidance on areas of growth.

Introduce them to the wider community. Get current and potential leaders involved with an industry trade association or a local chamber of commerce. By meeting and networking with others in your industry, these individuals can get a broader perspective on the challenges that your company faces — as well as its opportunities.

Give them real decision-making authority. Probably not right away but, at some point, put a new leader to the test. Give them control of a project and then step back and observe the results. Don’t be afraid to let them fail if their decisions don’t pan out. This can help your most promising employees learn real-world lessons now that can prove invaluable in the future.

Benefits beyond

Dedicating some time and energy to internal leadership development can pay off in ways beyond having well-trained managers. You’ll likely boost retention by strengthening relationships with your best employees. Furthermore, you may discover potential problems and avail yourself of new ideas that, otherwise, may have never reached you. Our firm can provide further information and other ideas.

© 2019

Filed Under: Business Strategy

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