Cochran Head Vick & Co. - A Professional Experience

Thinking Bigger Business Media Inc. recently published an article written by Jerry Dunn of Cochran Head Vick & Co.

Grow Your Business Using Current Tax Rules

In the past year, several major tax provisions have been enacted, some with big advantages for small business. Asset acquisition—a major area of emphasis for growing businesses—when properly structured tax wise, can significantly aid financing costs.

Cost Recovery Rules

Financing business expansion is a primary element of successful growth. Present tax laws will aid that process in several ways. Cost recovery rules (i.e. “depreciation”) may help defray the expense, and have never been more generous.

How does rapid write-off work?

The cost of new personal property acquired between Sept. 9, 2010 and Dec. 31, 2011 can be fully expensed under the new 100 percent bonus depreciation rules. Therefore, regardless of how assets are financed, the entire purchase price can be expensed (“recovered”) when purchased. This offers major financing benefits for a profitable business. (See example in box).

Planning and timing are crucial to effective business expansion, so meet with your advisers early for greatest advantages.
What if I want to buy used equipment?

First-year expensing may be achieved using IRC Sec. 179. Increased limits of $500,000 write-off on asset acquisitions up to $2 million apply to 2010 and 2011. The form of business organization may impact current utilization, however. There may be limits at both the entity and individual level that don’t apply to “bonus depreciation.” Again, proper planning is imperative.

Profit margins are tight, can these rules help me?

Even if savings don’t apply in 2011, prior year taxes might be recovered by creating a net operating loss through write-off created by bonus depreciation. The federal government allows losses to carry back two years and recover previously paid taxes.

What limits apply to transportation equipment?

Passenger automobile write-offs are limited. The additional first-year write-off of $8,000 has been extended to 2011. Leasing a car may allow expensing of nearly all annual costs, although surcharges may apply if usage is too high.

“Heavy” SUVs, weighing at least 6,000 pounds, have increased limits. Previously limited to $25,000 Sec. 179 depreciation and normal depreciation on the remaining basis, under the bonus depreciation rules these vehicles are not limited in 2011. The full cost is recoverable in the year of purchase.

Mileage and length of use impact type of acquisition. Consult your advisers before you finalize.

Real Estate Acquisitions

Certain real estate acquisitions have been extended and enhanced. For 2010 and 2011, if your business leases its facilities or is a qualifying restaurant or retail improvement, rapid write-offs apply to these expansions.

Generally, a 15-year cost recovery is available instead of the usual 39 years. Bonus depreciation and Sec. 179 may apply as well. Before undertaking any such expansion, contact your tax advisers to maximize benefits.

I lease my work space, what help do I get?

The cost of many leasehold improvements in buildings over three years old can be recovered over 15 years. Thus, annual tax savings more than double compared to “normal” real estate depreciation rules. Even better, these improvements are eligible for first-year write-offs and bonus depreciation under similar rules to personal property acquisitions.

My restaurant is due for an expansion or additional location, how do current tax laws help me?

Restaurants may be eligible for the 15-year write-off period. This rule even applies to the building itself. Leased restaurant facilities will be eligible for the same rules as above. Owned properties are probably not eligible for Sec. 179 treatment or bonus depreciation.

My retail establishment needs improving but margins are tight, what incentives exist?

Retail improvements also are entitled to a 15-year write-off. But unless the property is leased, the bonus depreciation and Sec. 179 expense likely will not apply. Therefore, even with tight margins, enhanced cost recovery may expedite needed improvements.

Use Caution in Applying These Rules

In order to avoid traps for the unwary, proper planning and consultation with your tax advisers is essential as you proceed with your expansion plans. Depreciation recapture rules apply when disposing of assets. Sec. 179 expense may have to be repaid if the asset’s percentage of business use declines or the asset is sold early. The cost of proper planning will more than pay for itself.

Jerry Dunn, CPA, is a partner at Cochran Head Vick & Co., a Kansas City firm with four offices and more than 35 years in business. (816) 453-7014 // dunn.j@chvcpa.com // www.chvcpa.com

Accounting Today recently published an announcement regarding new hire Allison Conrad as staff auditor at Cochran Head Vick & Co.

Allison Conrad has joined Cochran Head Vick & Co., Kansas City, as a staff auditor. ...

SAINT JOSEPH, MO--(Marketwire - March 8, 2011) - Allison Conrad was recently hired as a staff auditor at Cochran Head Vick & Co., a local certified public accounting firm. Conrad is a first year auditor and will be primarily assisting in audits of governmental entities (www.chvcpa.com).

Dave Cochran, CPA, said, "Allison is a great addition to our team, and we are thrilled to be working with her."

Conrad is from Chillicothe, Mo. and graduated with a Masters of Accountancy in May 2010 from University of Missouri-Columbia. She has completed and passed all parts of the CPA exam and is acquiring the required one year of public accounting experience which will enable her to apply for her permit to practice.

Cochran Head Vick & Co. is a certified public accounting firm, which conducts audit and accounting services, governmental accounting services, tax return preparation and tax planning services, payroll services and business valuation services in Kansas and Missouri. The firm was founded more than 35 years ago and has offices in St. Joseph, Mo. Merriam, Kan., Kansas City, Mo. and Kansas City, Kan.