Are Lower Tax Rates Always A Good Thing?

OK, so the new tax law is here (The Tax Cut & Jobs Act of 2017) and everyone is excited about lower tax rates beginning in the tax year 2018, right?

But when are lower tax rates NOT a good thing?  Well, when you want to take advantage of specialized tax incentives, you will maximize your savings if you apply the savings to a higher tax rate.

Let me explain: Let’s say a hotel conducted a Cost Segregation review on their property and they identified $670,000 in accelerated depreciation that they can use in the current tax year (the tax year 2017). Let’s also say that their current tax rate is 35%. The value they would realize is pretty straightforward: $670,000 x 35% = $234,500.

Now, what happens if this same hotel conducted this Cost Segregation review in the tax year 2018? The $670,000 in accelerated depreciation would be applied to their NEW tax rate, which is 21% under the new tax law. Their savings amount is quite different: $670,000 x 21% = $140,700.

If you analyze the two values: 2018 minus 2017, there is a tremendous loss of value!

$140,700 – $234,500 = ($93,800)

This company suffered a huge loss in value simply by waiting until the tax year 2018 to perform the Cost Segregation!

The only thing that changed is the tax rate!  While your rate change may not be this drastic, it WILL be lower starting next year, so the time to maximize your potential savings is NOW!

Contact me TODAY so we can get started helping your business realize the most value possible from your investment in your business!

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