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Top 5 Tax Tips for Cryptocurrency Investors, Traders and Miners

Here at Camuso CPA, we offer a wide array of tax services for investors including tax preparation and tax planning. Financial service companies are transitioning from employee driven revenue models to information driven revenue models. Camuso CPA strives to deliver useful insights and offer relevant explanations about the latest tax and financial topics.

Reporting Is The Taxpayers Responsibility

Most Cryptocurrency exchanges that you trade on will not provide 1099 reporting data. The exchanges that do provide this data like Coinbase or Gemini have historically only provided Form 1099-K which does not provide the relevant cost basis information required to accurately report your transactions for tax purpose and also does not reconcile multiple exchanges.

That means you need to work with an experienced cryptocurrency CPA firm like Camuso CPA to protect your assets and legally minimize your taxes. We will reconcile all of your exchange data and accurately report your cost basis and gain/loss to the IRS.

Documentation Is Key

Since cryptocurrency is taxed as property almost every cryptocurrency transaction is a taxable event which means documentation is key in order to provide your CPA with all the relevant information required to accurate analyze your cryptocurrency transactions.

Here’s what the typical crypto investor needs to provide to their CPA, this data can usually be downloaded from your transaction histories on exchanges. Create a complete list of all trades for that taxable year, including the following information. All these amounts must be calculated in USD based on the exchange rate at the time of the trade by your CPA:

  • Trade date
  • Type of Asset Purchased and Sold
  • How much it was paid for
  • How much it was sold for
  • The cost of doing the trade (fee)

Don’t Hide Trades

While paying taxes can at times be painful, it is very important that you include your crypto-trading activity with your tax return. A lot of traders are convinced that because of the anonymous, decentralized nature of Blockchain and crypto transactions, that there is no way for the government to see or know that they are making money trading/buying/selling cryptocurrency.

Unfortunately for these people, this is just not true. The Blockchain is a distributed public ledger, meaning anyone can view the ledger at anytime. Figuring out an individual’s activities on that ledger essentially comes down to associating a wallet address with a name. You can bet that the IRS is only gearing up to become proficient at doing that.

Ultimately, if you choose not to file your gains/losses, you will be committing blatant tax fraud to which the IRS can enforce a number of penalties, including criminal prosecution, five years in prison, along with a fine of up to $250,000.

Properly tracking and reporting your cost basis is imperative to protect your assets from penalties and interest as a result of underreporting. When analyzing cryptocurrency portfolios our starting point is the last ending tax year’s cost basis for each asset which is considered along with all relevant transactions from the current year to arrive at both an ending tax liability and ending cost basis for each respective asset you are holding.

This means that if you did not track your cost basis correctly in prior years or did not report it that your portfolio calculation for years following that will also be incorrect.

It is clear that, with the huge price declines in cryptocurrency markets during 2018, many people will be considering harvesting losses and reporting this for a tax benefit. If you did not report crypto activity up to now or tracked your cost basis improperly, those choosing to reveal losses this year will be at a high risk of audit and tax penalties. Taxpayers that have not previously reported will also need to report their crypto transactions every year going forward.

All Trades Are Taxable But There Is a Hidden Benefit

Since crypto to crypto trades are taxable investors need to be very aware when making trades during the year and work with a CPA on an ongoing basis to track their portfolio’s tax labiality for estimated tax purposes. We really saw this hurt investors during 2017 and hurt their portfolio when they were liquidating it to pay taxes on profits during the bull run in a bear market.

The good news is that since cryptocurrencies are generally classified as property, wash sale regulations should not currently be a concern for investors. This means investors can sell an investment to realize a tax loss, only to buy it back immediately thereafter at a bargain. Today, wash sales only apply to stocks and securities, so traders are operating in a gray area for now until further IRS clarification is issued. This is an area that we go over in detail with investors on an asset by asset basis to advise them on taking this position. We have saved investors millions of dollars in 2018 alone using tax planning strategies such as this.

CPAs Are Rushing Into The Industry

CPAs are late to the game but also rushing into the cryptocurrency space. As an industry leader in cryptotax services I have been able to observe how this niche sector is developing.

It is not out of the ordinary for me to get targeted with ads from various franchise organizations to “double my accounting fees” by offering crypto tax services with no prior experience. This catches me off guard.

I can only picture how investors are navigating this maze of service offerings and distinguishing from CPAs that have financial services experience and an understanding of crypto between CPAs that have just hopped on this bandwagon.

Analyzing financial transactions are a detailed process that can easily be plagued with costly errors that can impact multiple tax filing years if you do not have a structured process and workflow in place. Analyzing crypto transactions adds another layer of complexity due to the nascency of this industry and the reporting standards from exchanges.

Many CPAs are using a back offices from another company to actually analyze an investors’ portfolios and do not understand this process. Without the proper experience and training it is very easy for well-meaning accountants to make costly errors related to the portfolio calculations and advisory they provide investors.

Be careful and do you due diligence. At the end of the day your tax return is your responsibility and it is your job to work with an experienced CPA firm to protect your assets.

I would suggest that investors work with a CPA that not only understands and invests in crypto but also a CPA that has a strong background in financial services.

Here at Camuso CPA, we offer a wide array of tax and accounting services for cryptocurrency investors and traders including tax preparation, tax planning and portfolio reconciliations. Contact our team today to learn more about working with us and how we can protect your assets and legally minimize your taxes.

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How Real Estate Agents Save Big on Self-Employment Tax

If you are a real estate agent or broker, you are most likely subject to the self-employment tax. We will go over how you can potentially save thousands on your tax bill.

If you’re like many real estate agents and brokers, you are paid as independent contractor.

As an independent contractor, you are considered self-employed and subject to the full 15.3% self-employment tax. W-2 employees pay 7.65% and their employer pays the other 7.65%

Electing to have you LLC to be taxed as an S-Corporation allows you to hire yourself as a W-2 employee and split your earnings between salary and distributions.

It is very important to work closely with a CPA to set a reasonable compensation for yourself to avoid IRS scrutiny. Creating an entity and electing to be taxed as an S Corp has its advantages and can potentially lower your tax liability, but has many considerations which are warranted before making the tax election and changing your company structure.

Contact our team today to discuss you entity selection in detail as it related to your specific financial circumstances.

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What To Do If You Have Not Reported Your Real Estate Investments On Last Year’s Tax Return

Here at Camuso CPA, we offer a wide array of tax services for real estate investors including tax preparation and tax planning. If you are interested in how this might specifically benefit your business or portfolio, please don’t hesitate to reach out in detail today to schedule a free initial consultation regarding your specific facts and circumstances.

The IRS can go back up to three years to prosecute cases of tax evasion, and in cases where they find substantial error, they can decide to go back up to six years or more. If you did not report your real estate transactions properly in prior years the best course of action is to file an amended tax return.

Step 1: Calculate Your Tax Liability

When preparing your tax return, you are going to have to figure out your taxable income from your real estate investments for the year. This involves figuring out how much of your assets were sold for capital gains. Additionally, if you own rental properties you will have to determine the amount of taxable income to report from your portfolio.

If doing real estate tax is proving to be a challenging feat, you should consider enlisting the services of a qualified CPA at a professional tax firm such as Camuso CPA.

Step 2: Amend your return

Once you have determined your capital gains and tax liabilities, you should download a current IRS Form 1040X, Amended U.S. Individual Income Tax Return

Step 3: Mail in your amended return

After preparing your amended tax return to reflect your real estate transactions they will be mailed to the IRS along with all applicable tax payments.

While paying taxes can at times be painful, it is very important that you include your real estate businesses and portfolio properly on your tax return. Ultimately, if you choose not to file your gains/losses and/or income, you will be committing blatant tax fraud to which the IRS can enforce a number of penalties, including criminal prosecution, five years in prison, along with a fine of up to $250,000.

Here at Camuso CPA, we do have the ability to offer tax preparation and planning services to our real estate clients. If you are interested into how this might benefit your business or portfolio, please don’t hesitate to give us a call today. One of our friendly and knowledgeable representatives will be happy to answers any questions you have.

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What Investors Don’t Know About Tracking Cryptocurrency For Taxes and How It Will Hurt Them

Here at Camuso CPA, we offer a wide array of tax and accounting services for cryptocurrency investors and traders including tax preparation, tax planning and portfolio reconciliations. Camuso CPA strives to deliver useful insights and offer relevant explanations about the latest tax and financial topics.

How It Works

How you report the cryptocurrency transactions will depend on how long ago you bought your cryptocurrency and on the price at which you purchased it. If you’ve held the crypto for less than a year before transacting with it, it’s taxed as a short-term capital gain, which is still taxed at the same rate as ordinary income. But if you’ve held crypto for longer than a year before using it, it is taxed as a long-term capital gain at lower rates.

As discussed before, the IRS requires that taxpayers report the fair market value of their coins – in a reasonable and consistent manner – on the date of purchase. The fair market value reported by a taxpayer disposing of cryptocurrencies should serve as the additional cost basis for the new taxpayer acquiring the currency. This is easier said than done because taxpayers tend to report conflicting cost basis that maximize personal tax advantages. As you can see tracking cost basis is a cumulative process.

How This Impacts Taxpayers

Properly tracking and reporting your cost basis is imperative to protect your assets from penalties and interest as a result of underreporting. When analyzing cryptocurrency portfolios our starting point is the last ending tax year’s cost basis for each asset which is considered along with all relevant transactions from the current year to arrive at both an ending tax liability and ending cost basis for each respective asset you are holding.

This means that if you did not track your cost basis correctly in prior years or did not report it that your portfolio calculation for years following that will also be incorrect.

It is clear that, with the huge price declines in cryptocurrency markets during 2018, many people will be considering harvesting losses and reporting this for a tax benefit.

If you did not report crypto activity up to now or tracked your cost basis improperly, those choosing to reveal losses this year will be at a high risk of audit and tax penalties. Taxpayers that have not previously reported will also need to report their crypto transactions every year going forward.

If you searching for CPA firms to assist you with reporting cryptocurrency income and capital gains, contact Camuso CPA. Whether you need tax preparation services, assistance with properly reporting gains and income from virtual currencies on your taxes, cryptocurrency portfolio analysis, or any other service provided by a certified accountant, Camuso CPA can help.

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Form 1099-K: What Cryptocurrency Investors Need to Know in 2019

Here at Camuso CPA, we offer a wide array of tax and accounting services for cryptocurrency investors and traders including tax preparation, tax planning and portfolio reconciliations. Camuso CPA strives to deliver useful insights and offer relevant explanations about the latest tax and financial topics.

The IRS has demonstrated it intends to enforce existing 1099 reporting rules on cryptocurrency exchanges, but it has not followed up by providing clarity regarding those rules. For instance, trading platforms might have to send 1099-B forms to users who exchange one type of coin for another, but they’re not explicitly required to send the forms the way brokers are for stock trades. Generally, requirements surrounding the 1099-B remain unclear for cryptocurrencies.

The IRS has already forced a Coinbase to report users on form 1099-K, the same form home-share and ride-share companies use to report transactions with homeowners and drivers. The federal reporting threshold for the 1099-K is currently set at $20,000 and 200 transactions per year.

The 1099-K lacks the cost basis details required to capture the capital gain/loss calculation that would ultimately determine taxable income and tax revenue for the IRS.

If people are transacting in digital currency, it’s important that anyone understands that there’s a tax obligation on their part. Whether they’re paying their taxes or whether they’re day traders– it doesn’t matter. Any time there is a transaction with digital currency, it’s important that people understand there is a tax liability.

The reason that 1099-K are not usually accurate is because they do not report the relevant cost basis data necessary to accurately calculate capital gains/losses. Additionally, this form does not reconcile trades across multiple exchanges. Our team at Camuso CPA works with cryptocurrency investors and traders on a daily basis to accurately calculate all of your cryptocurrency transactions in order to properly report them for tax purposes.

Properly tracking and reporting your cost basis is imperative to protect your assets from penalties and interest as a result of underreporting. When analyzing cryptocurrency portfolios our starting point is the last ending tax year’s cost basis for each asset which is considered along with all relevant transactions from the current year to arrive at both an ending tax liability and ending cost basis for each respective asset you are holding. This means that if you did not track your cost basis correctly in prior years or did not report it that your portfolio calculation for years following that will also be incorrect. This can cause cascading and costly issues across multiple years of tax returns in many cases.

Analyzing financial transactions are a detailed process that can easily be plagued with costly errors if you do not have a structured process and workflow in place. Analyzing crypto transactions adds another layer of complexity due to the nascency of this industry and the reporting standards from exchanges. Without the proper experience and training it is very easy for well-meaning accountants to make costly errors related to the portfolio calculations and advisory they provide investors.

Be careful and do you due diligence. At the end of the day your tax return is your responsibility and it is your job to work with an experienced CPA firm to protect your assets. I would suggest that investors work with a CPA that not only understands and invests in crypto but also a CPA that has a strong background in financial services.

If you searching for CPA firms to assist you with reporting cryptocurrency income and capital gains, contact Camuso CPA. Whether you need tax preparation services, assistance with properly reporting gains and income from virtual currencies on your taxes, cryptocurrency portfolio analysis, or any other service provided by a certified accountant, Camuso CPA can help. We are industry leaders in cryptocurrency tax services and you will not find a better team of CPAs to assist  you with your tax needs.

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Why Cryptocurrency Investors Cannot Use Popular Tax Preparation Software

Here at Camuso CPA, we offer a wide array of tax and accounting services for cryptocurrency investors and traders including tax preparation, tax planning and portfolio reconciliations.

Virtual currency exchanges signed up millions of new users in 2018. However, cryptocurrency became an increasingly mainstream investment last year, and more and more people started trading at high volumes. By the end of the year, some of the more active cryptocurrency investors had made thousands of trades.

The IRS requires investors to submit records showing every time they sold or spent their virtual currency assets. For high volume traders, this can add up quickly.

As the cryptocurrency investment community gets ready for tax season, some high-volume investors are finding they are no longer able to self-prepare. This is because many of the existing tax preparation software limits the number of transactions you can report. TurboTax Online can only accept up to 500 transactions per account, and the company warns that online performance is likely to go down as more information is uploaded.

Camuso CPA offers the highest-quality tax advice and planning services specifically focused on the needs of cryptocurrency investors.  The tax laws are changing, and the IRS is focusing on the crypto investors. Cryptocurrency investors need sound tax advice from a trusted and experienced CPA.

If you searching for CPA firms to assist you with reporting cryptocurrency income and capital gains, contact Camuso CPA. Whether you need tax preparation services, assistance with properly reporting gains and income from virtual currencies on your taxes, cryptocurrency portfolio analysis, or any other service provided by a certified accountant, Camuso CPA can help.

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What To Do If You Have Not Reported Your Crypto Trades On Last Year’s Tax Return

Here at Camuso CPA, we offer a wide array of tax services for investors including tax preparation and tax planning. Financial service and technology companies are transitioning from employee driven revenue models to information driven revenue models. Camuso CPA strives to deliver useful insights and offer relevant explanations about the latest tax and financial topics.

According to the personal financial service Credit Karma, only about 0.04 percent (or 100 citizens out of 250,000) of United States citizens reported their cryptocurrency transactions to the IRS as of February 13.

Back in March of 2014, the IRS began providing some guidance for the taxation of Bitcoin, one of the most popular and mainstream cryptocurrencies. Because of these guidelines, cryptocurrencies are treated as property rather than currency.

Like all taxed property, when you report cryptocurrency to the IRS, what you owe will be based off of the price you bought it at, the price you sold it at, and the change in value between when you bought and sold it. Many experts believe this is not the ideal designation for cryptocurrencies,and may even become a deterrent in their adoption.

The IRS can go back up to three years to prosecute cases of tax evasion, and in cases where they find substantial error, they can decide to go back up to six years or more. If you did not report your cryptocurrency transactions properly in prior years the best course of action is to file an amended tax return.

Step 1: Calculate Your Tax Liability

When preparing your tax return, you are going to have to figure out your taxable income from cryptocurrencies for the year. This involves figuring out how much of your crypto assets were converted into non-crypto assets like cash or goods and services as well as other cryptocurrencies. Your cryptocurrency holdings aren’t taxable. Anytime you sold cryptocurrency or used it to buy something, have capital gains exposure.

You’ve already got records of most of those transactions, either on the blockchain or from your wallet provider, but converting it to dollars can be a real hassle since you’ll need to run the value of the cryptocurrency against the price of the crypto at the time of the transaction. First thing’s first, you’ll want to download all transaction data from the exchanges you use, which are usually available as CSV files. Some exchanges like Coinbase send users form 1099-K if they have received at least 20,000 US dollars cash sales of crypto related to at least 200 transactions in a calendar year. However, if you don’t use an exchange, do your best to document every transaction.

If doing cryptocurrency tax is proving to be a challenging feat, you should consider enlisting the services of a qualified CPA at a  professional tax firm such as Camuso CPA.

Step 2: Amend your return

Once you have determined your capital gains liability, you should download a current IRS Form 1040X, Amended U.S. Individual Income Tax Return. This form comes with easy-to-follow instructions and requires you to only include new or updated information.

Step 3: Mail in your amended return

After preparing your amended tax return to reflect your cryptocurrency transactions they will be mailed to the IRS along with all applicable tax payments.

While paying taxes can at times be painful, it is very important that you include your crypto-trading activity with your tax return. A lot of traders are convinced that because of the anonymous, decentralized nature of Blockchain and crypto transactions, that there is no way for the government to see or know that they are making money trading/buying/selling cryptocurrency. Unfortunately for these people, this is just not true. The Blockchain is a distributed public ledger, meaning anyone can view the ledger at anytime. Figuring out an individual’s activities on that ledger essentially comes down to associating a wallet address with a name. You can bet that the IRS is only gearing up to become proficient at doing that.

Ultimately, if you choose not to file your gains/losses, you will be committing blatant tax fraud to which the IRS can enforce a number of penalties, including criminal prosecution, five years in prison, along with a fine of up to $250,000.

If you searching for CPA firms to assist you with reporting cryptocurrency income and capital gains, contact Camuso CPA. Whether you need tax preparation services, assistance with properly reporting gains and income from virtual currencies on your taxes, cryptocurrency portfolio analysis, or any other service provided by a certified accountant, Camuso CPA can help.

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How to Establish A Company Structure for Real Estate Portfolios

Any business decision you make, especially directly related to your finances and business structure, should be made with a defined cost, benefit and purpose. The focus should be on maximizing your time and money by focusing on how much money you are saving versus the time it took to save that money.

One of the first decisions an investor makes when structuring a real estate portfolio is which entity is best suited for their investment goals. There is no “one size fits all” investment strategy that works for all real estate investors. However, there are common types of entities that are most used to invest in real estate.

Limited Liability Company

A limited liability company, also known as an LLC, is typically the best entity for real estate and mortgage investors that follow a “buy and hold” strategy for their investments. When an investor buys and holds real estate property, it is considered a capital asset. In most states, including North and South Carolina, the ownership of real estate does not enact the transaction of business. This choice is typically the most beneficial for long-term investors.

Limited Partnership

To have a limited partnership, there must be one or more general and limited partners for the purpose of a business venture. Typically, the general partners are responsible for managing the investment while limited partners handle the capital invested into the partnership.

One of the advantages of this entity ability to invest funds and let the general partner manage the everyday tasks associated with the operation. In addition to the limited liability and duties that investors have, there are also tax benefits, such being able to pass through tax losses, providing greater diversification, and allowing flexibility in allocating gains and loses amount partners.

S Corporation

Flipping properties has become quite the trend in recent years and is a great way for investors to profit. When real estate properties are flipped, they then are considered an inventory and the investor is technically a dealer. However, a real estate dealer is vastly different from a real estate investor.

For real estate investors that flip properties, it is best to form an S Corporation, as this allows them to avoid self-employment or social security taxes on a portion of the profits received from flipping real estate.

Multiple Entities

In the situations that real estate investors plan to flip some properties and hold others for a longer term or are syndicating funds and will be managing properties, they should consider forming at least one S corporation and at least one LLC to own property long term. Mixing real estate investment strategies in the same entity should never be done as it can lead to problems.

Additional Company Documents

After your CPA has established your Articles of Organization and EIN to set up your companies, they will also draft your company’s operating agreement and resolutions.

An operating agreement is a key document used by LLCs because it outlines the business’ financial and functional decisions including rules, regulations and provisions. The purpose of the document is to govern the internal operations of the business in a way that suits the specific needs of the business owners. Once the document is signed by the members of the limited liability company, it acts as an official contract binding them to its terms.

An operating agreement is similar in function to corporate by-laws, or analogous to a partnership agreement in multi-member LLCs. In single-member LLCs, an operating agreement is a declaration of the structure that the member has chosen for the company and sometimes used to prove in court that the LLC structure is separate from that of the individual owner and thus necessary so that the owner has documentation to prove that he or she is indeed separate from the entity itself. Most states do not require operating agreements. However, an operating agreement is highly recommended for multi-member LLCs because it structures your LLC’s finances and organization and provides rules and regulations for smooth operation.

A resolution is a written document that describes some action by the owners or managers of a company. Corporations are required by state law to make resolutions, which are routinely prepared regarding the actions of the board of directors and sometimes regarding shareholder actions. Although an LLC is not required by law to make resolutions, sometimes there are practical business reasons for an LLC resolution.

Professional CPAs can assist investors with setting these companies up by advising on your optimal structure and filing the applicable documents. Contact your local CPA to learn more.

Here at Camuso CPA, we do have the ability to offer advisory on your optimal structure and preparation services for the applicable documents along with other powerful tax planning tools to our clients.

If you are interested into how this service might benefit your business, please don’t hesitate to give us a call today. One of our friendly and knowledgeable representatives will be happy to answer any questions you have.

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Real Estate Divestment Tax Strategy: Charitable Remainder Unitrusts

For many individuals and investors, real estate represents the largest portion of their net worth. Real estate has been a popular investment tool both for income and long-term appreciation. Individuals or businesses intending to divest real estate have several options.

These include outright sale or donation, bequest, bargain sale, charitable gift annuity, charitable remainder trust and retained life interest. Some of the alternatives provide an income stream and may result in charitable tax deductions and the avoidance of capital gains tax.

WHAT IS A Charitable Remainder Unitrusts?

Charitable remainder unitrusts can be an effective tool for converting real estate into higher income producing assets. Charitable remainder unitrusts may accept real estate as an asset, and then pay the net income generated by the property to the trust beneficiaries or sell the property and then pay a fixed percentage of the value of the assets.

A charitable remainder trust is an irrevocable trust that provides for and maintains two sets of beneficiaries. First is the income beneficiary. The income beneficiary receives a set percentage of income from the trust for life or a term of up to 20 years. The second is the charitable beneficiary. This could be one or more charitable organizations that receive the principal of the trust after the income beneficiaries pass away.

A CRUT can sell a property, reinvest the proceeds into a diversified portfolio of securities, and pay a percent of the trust value, all without any capital gains tax liability for the donor. This is a very useful tool to strategically minimize real estate taxes.

BENEFITS

Since the first beneficiary is the income beneficiary, the amount of income generated is of importance to the donor. The amount of income depends upon the payout percentage chosen and the amount of income generated within the trust. The remainder of the trust must be at least 10 percent of the fair market value of the assets transferred to the trust. That market value is determined at the time of transfer and based on the original amount of the appraised value.

The amount paid out to the income beneficiary can be 5 percent to 50 percent of the trust funds each year as long as the appropriate amount remains in the trust for the charitable beneficiary. A higher payout percentage will lower the charitable income tax deduction.

A charitable remainder trust is outside of the estate and additional assets can be added after it is established. The charitable deduction available depends on the type of property contributed and the type of charity named as the charitable beneficiary. Any deductions not used in the year of contribution can be carried forward five years.

Charitable Remainder Trusts aren’t something a investor can do internally, but rather require a CPA.

Here at Camuso CPA PLLC, we do have the ability to offer charitable remainder unitary trusts strategies along with other powerful tax planning tools to our clients. If you are interested into how this service might benefit your business, please don’t hesitate to give us a call today. One of our friendly and knowledgeable representatives will be happy to answers any questions you have.

Your personal and business finances are the foundation of your success. Contact Camuso CPA today to build your dedicated financial team: https://www.camusocpa.com/contact/#/

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What Is Cost Segregation?

Here at Camuso CPA PLLC, cost segregation is just one of the services that we provide at our firm. For those of you who are unfamiliar with the term, cost segregation is simply the act of identifying the assets of a business, their value, and then classifying those assets in regards to the federal tax code. It can be beneficial for many businesses, but it also has potential drawbacks. Cost segregation studies used to only be available for companies that were over a certain size with huge buildings, but nowadays much smaller companies can qualify.

Benefits

Some of the benefits possible from cost segregation include:

  • An increase in your cash flow
  • Lessened current tax liability
  • A deferral of taxes to a later date
  • The option to reclaim depreciation deductions that you missed from previous years without having to amend your tax returns

Engineering Based Cost Segregation

This type of cost segregation allows commercial real estate owners to reclassify their real property as personal property. What this does is make you depreciable tax life shorter.

The items that get identified in an engineering based cost segregation study include just about every range of building components you could think of: electrical installations, mechanical components, finishes, plumbing, etc. These get reclassified into more “shortly lived” asset categories, which can mean big savings for the business.

Time Value of Money (TVM)

Time Value of Money is an important concept in cost segregation: the whole process rests on it. Basically, the principle just states that a dollar today has more worth than a dollar at a later date. While inflation might make you think the opposite, remember that this dollar isn’t sitting buried in a suit case, but is going to be invested in the business. With cost segregation, this same property of the dollar applies to tax deductions, ie: a tax deduction today has more value than a tax deduction in the future.

That is the crux of cost segregation. You’re not actually necessarily saving a ton from lowering your depreciation, however because you have more cash now to invest in your business, the Time Value of Money results in a large net gain of profit.

Cost segregation studies aren’t something a business can do internally, but rather need a CPA for. And not just any CPA at that. The IRS Cost Segregation Audit Techniques Guide states ““Preparation of cost segregation studies requires knowledge of both the construction process and the tax law involving property classifications for depreciation purposes. In general, a study by a construction engineer is more reliable than one conducted by someone with no engineering or construction background. Experience in cost estimating and allocation, as well as knowledge of the applicable tax law, are other important criteria.”

Here at Camuso CPA PLLC, we do have the ability to offer cost segregation studies to our clients. If you are interested into how this service might benefit your business, please don’t hesitate to give us a call today. One of our friendly and knowledgeable representatives will be happy to answers any questions you have.

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