Your business is personal good, has resources within its walls, and has a huge impact on what your organization owes in tax. Unfortunately, this critical perspective is often overlooked in real estate appraisals. every
In this article, you'll learn what constitutes business personal property, how it affects your property's value, and how to maximize your property tax savings.
What is Business Personal Property?
When you think of your commercial property, you can see buildings, land, and other structures. But have you considered the impact of what is inside your buildings when you review property taxes?
Every company has furniture, fixtures, equipment, warehouses, or other components belonging to the company, suitable for the production of income. It is considered personal business property and is subject to tax in many jurisdictions.
How does it affect property taxes?
Often, the only consideration companies give to personal business matters is the simple form they fill out each year for each jurisdiction. However, if you don't meet the compliance requirements of personal property or file incorrectly, your business will be in jeopardy. The assessor will determine the value of your company's personal property, add fines and interest for non-filing or inappropriate filing, and potentially deny a favorable Freeport Inventory Exemption. At this point, you may have lost control of your tax liability.
To lessen this risk, it is necessary to ensure that personal business assets are properly managed, documented, and reported. If you fall short in this aspect, you can incur higher taxes on commercial properties and put your bottom line at risk.
Obsolescence is a major factor affecting the business's personal property of your business. The obsolescence of personal business assets includes all forms of depreciation: normal wear and tear, loss of functional profit, and the impact of the property's external conditions. The last two forms of depreciation can be used to manage the valuation of business personal property.
Real estate appraisals are based on an analysis of comparable sales and rents to estimate the land and building's market value. Business personal property is valued based on a published depreciation schedule reflecting the wear and tear from the acquisition date to the recording date. Many taxpayers do not know that they have a legal right to additional depreciation, which could reduce the annual tax liability. When preparing your annual business personal property statement, be sure to document and claim the obsolescence of personal property to your advantage.
Some Strategies To Leverage The Value Of Your Business Personal Property
Develop a strategy
Before you even begin to prepare annual declarations of compliance for your company's assets, determine who is responsible and who knows the process and assessment of business personal property management. You'll never want to take a reactive approach to property taxes, only dealing with them when there's a valuation wave on your desk.
Working with your team to develop a proactive corporate property tax strategy is the first step to effective management. Once you have determined who is responsible for managing your business's assets, research the requirements, protocols, and conditions of appeal for each jurisdiction. This is essential information for proper tax administration.
Keep complete records
It is not enough to record the personal assets of your business. You should keep complete and up-to-date records that reflect the value of your assets today.
In addition to a general list of resources, you may need to have information on factors such as the industry as a whole, downtime, or advanced equipment to document your request for value loss. Remember that anything sent in addition to the form should be documented and backed up with the company and industry data to present your case.
Clean up "ghost resources."
Are there items on your list of personal business properties that have been deleted or moved to another location? Are there any items that are not physically in your building but are still on the resource list? During daily business operations, monitoring resources with these details is tedious, and many resources are lost in confusion. This is an undeclared cost of the business.
However, broken or irreparable equipment can still be taxed as if it were fully functional if it remains on the list. To ensure that ghost resources are removed, have a process to review your company's assets and resources and inventory on a regular, monthly, quarterly, or annual basis.
Follow Industry Standards
Each sector has its own needs for personal properties, for which equipment, machinery, and stocks are completely renewed and replaced. For example, an IT service provider's job would not be competitive if it operated with outdated equipment. It would lose market share compared to its competitors.
If expensive equipment (such as computers) is replaced regularly, it is essential to verify these personal properties. Consult with other industry leaders for examples of managing your assets.
Economic Factor
Business personal property is not just an isolated value. The economy is an external force with one of the biggest impacts on your personal property's value. The economic downturn in your industry may dampen this value.
Take the case of a coal mining equipment dealer. The energy sector has shifted from coal to gas and now to solar and wind. The coal industry's decline is easy to document, and the resulting demand for mining equipment is inevitably low.
Some depreciation is out of control. The equipment is not obsolete; it just may no longer be necessary. This has significant weight in assessing the potential to request additional obsolescence of your company's personal property.
Think about outsourcing
Managing your business's personal assets is a complex and in-depth endeavor that requires specialized knowledge and experience. Many businesses do not have the time or experience to effectively manage their own business personal assets; therefore, they outsource this responsibility to property tax specialists.
This option returns time to your daily activities, and you can be sure that your taxes are being managed as efficiently as possible. Experienced professionals understand better what constitutes business personal taxable property than non-taxable property, which is often a source of confusion for many businesses. Experts can also monitor deadlines and determine if you qualify for an appeal.
