Connections for Success



Whipping Up a Tax Savings Recipe
Brian R. Israel

Like most, one of the things I enjoy about dining out is the atmosphere.  Places like Gibson’s, Lux Bar, and a slew of other restaurants have spent hundreds of thousands of dollars building out their restaurant concept.  However, it is amazing how few restaurants owners take advantage of the benefits offered by doing a cost segregation study (with exception to our clients of course).  In my mind, foregoing this type of potential tax savings is like forgetting to add pasta to a spaghetti and meatball recipe.  What’s the point?

Perhaps it is because these restaurant owners are not aware of the benefits of such a study.  So today, I am going to share with you this recipe for cost savings.  Here is what is involved:

Cost Saving Recipe

1 cup CPA firm that specializes in cost segregation studies
1 cup Engineering study
1 generous portion Components associated with the build out or the improvements (the architectural plans, building structure, plumbing, etc.)
1 heaping teaspoon IRS  tax code

First, in a large mixing bowl, add together the CPA firm, the engineering study, and the components used in the new construction and stir slowly until well blended.  Add the mixture to a separate pan, and slowly add all of the costs from the engineering study to various shorter-lived assets adding in the heaping tablespoon of IRS tax code.  Allow it to all to simmer until accelerated tax deductions result in immediate tax savings and Voile!  Now that is a cost savings recipe.

Now, I jest to some extent but really the process is relatively straight forward and in the majority of the studies we have done for our restaurant clients, the tax savings has far outweighed the cost of the study.  So you get to have your cake and eat it too.

Now, here is the icing on the cake.  If you have done major construction or leasehold improvements within the past few years and have not done a study, you can save current tax dollars and avoid the need to amend prior year returns.  The tax laws allow for immediate recognition of the prior years’ depreciation expense in the year of the study.  So no matter if you offer full-service fine dining or fast food, cost segregation studies can benefit all types of restaurants.

If you would like to learn more about cost segregation studies and how your business can take advantage of them, feel free to contact me at [email protected] or 312.670.7444.

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