DEPRECIATION REVIEW
It is very common that businesses capitalize assets and assign depreciation periods that are far longer than what is allowed by current tax law. The result is that the taxpayer is taking far smaller depreciation deductions each year than what is permitted. The IRS allows taxpayers to change these depreciable lives to their proper lives and, at the same time, the taxpayer receives a one-time "catch-up" adjustment on his current year taxes to account for the prior years missed deductions (as far back as 1987!). We can help your company reap significant benefits by examining your fixed asset records and implementing this method change by reclassify fixed assets to a shorter recovery period or to catch up missed depreciation, such as bonus depreciation, resulting in accelerated tax depreciation. At the same time, we can also identify opportunities for your company to apply the findings to assets placed in service in future years. The best part is that we can provide you with a very accurate estimate of the additional deductions before beginning any project.
This tax accounting method change is one that the IRS provides automatic consent for. Practically speaking, that means that the taxpayer does not have to ask the IRS permission to make this change. Rather, the taxpayer makes the change, calculates the amount of the "catch up" deduction, includes that deduction on his current year taxes and merely files an additional form with his taxes to inform the IRS of the change. This automatic change is also useful for catching up AMT depreciation deductions to reduce AMT. This acceleration is further enhanced by the continued extension of the 50 percent additional first-year bonus depreciation rules for certain shorter-lived property.
REPAIRS REVIEW
Closely related to a Depreciation Review is a Repairs Review. Many companies have capitalized as assets common repair and maintenance expenses, which are generally deductible. Through a review of a company's current capitalization practices and policies there is a significant opportunity to drive cash tax savings. A focused review of the treatment of costs capitalized as improvements, as well as reviewing the recovery period and methodology of capitalized assets, will often lead to opportunities to recover missed deductions such as repairs and maintenance expenses, increase depreciation deductions not claimed in prior years, and potentially reduce state tax liability associated with certain assets.
These changes generally accelerate incidental repairs that were capitalized and depreciated over a long recovery period such as 39 years to a current deduction. In August 2009, IRS added this particular method change to Revenue Procedure 2008-52, providing taxpayers with automatic consent to make such a method change. So, like the Depreciation Review, the taxpayer does not have to reqest permission from the IRS to make this tax accounting method change. Also like the Depreciation Review, we can provide you with a very accurate estimate of the additional deductions before beginning any project.
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