Case Study 3: Manufacturing Facility – Business Owner

Client Profile:

Name Karen Lee
Occupation Business Owner (Manufacturing)
Annual Income $1 million
Property Manufacturing Facility
Property Purchase Price: $10 million
Location Industrial Zone, 2023
Primary Goal Save taxes and reinvest into the business

Scenario:

Karen purchased a 100,000 sqft manufacturing facility for $10 million. As the owner of a profitable manufacturing business, Karen is looking to offset her taxable income to reinvest back into the business. She also wants to reduce her corporate taxes for the upcoming fiscal year.

Cost Segregation Benefits:

A detailed cost segregation study revealed the following:

  • Personal Property (Machinery, Equipment):
    $2 million
  • Land Improvements (Paving, Landscaping, etc.):
    $1 million
  • Building (Structural components):
    $7 million

By allocating costs for personal property and land improvements, Karen can depreciate those assets much faster, leading to more significant upfront tax deductions.

Tax Savings Calculation

Accelerated Depreciation:

  • Personal Property:
    $2 million / 5 years = $400,000 per year
  • Land Improvements:
    $1 million / 15 years = $66,667 per year
  • Total Depreciation Deduction in Year 1:
    $466,667

Tax Benefit:

At a 35% tax rate, Karen will save $163,334 in the first year.

Conclusion:

Karen was able to reduce her tax liability significantly by utilizing cost segregation, which allowed her to depreciate a large portion of her facility’s costs in the first year. This strategy has a major cash flow benefit for her business, enabling her to reinvest in her manufacturing operations and grow further.

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