Cost Segregation in Hospitality, Retail, and Manufacturing

Maximizing tax benefits while ensuring regulatory compliance is a never-ending challenge, especially for those in the hospitality, retail, and manufacturing industries. There are numerous rules and regulations to keep track of, and property assets are substantial and varied.

However, there’s a tried-and-true strategy that helps unlock hidden value and potential savings: cost segregation. Here, we'll cover what to know about cost segregation in hospitality, retail, and manufacturing and how this underutilized strategy can be a game-changer for your business.

What Is Cost Segregation?

Cost segregation is a tax deferral strategy that takes a building and its associated assets and identifies those that can be depreciated over a shorter period. It's beneficial for those who have purchased, constructed, or renovated their facility.

Depreciating assets over a shorter period may also qualify for bonus depreciation. Cost segregation is a powerful tool for maximizing tax deductions and saving money.

Hospitality Sector

The hospitality industry is tricky. You're trying to provide exceptional guest experiences while optimizing operational costs. You don't want one to come at the expense of the other!

With help from cost segregation, you will be able to reclassify personal property assets from real property. For example, if you’re interested in cost segregation for hotels, you may be able to reclassify items like:

• Decorative elements
• Certain HVAC assets
• Certain electrical system assets
• Carpeting
• Fixtures

Doing so may substantially reduce your taxable income, increasing cash flow that can be reinvested into upgrading your facility or improving guest amenities.

Cost Segregation in Retail

In the retail industry, competition is fierce, and margins are tight—you should take any chance to optimize costs!

A cost segregation strategy developed by specialists can help depreciate assets more quickly, preserving cash flow and maximizing ROI. The best part? Retail stores of all sizes, from large department stores to boutique shops or even an ecommerce business with a warehouse can take advantage of cost segregation.

Money saved through cost segregation can be invested in several strategies to help grow and protect your retail business, like omnichannel marketing or new technology to streamline operations or improve the shopping experience. You can also use that improved cash flow to adapt to dynamic consumer trends, helping your retail business be even more attractive to customers.

Manufacturing

Regarding manufacturing, machinery and specialized equipment are your operation's lifeline. Without them, production screeches to a halt, impacting sales and profits. Cost segregation can provide significant tax advantages, freeing up capital to keep that specialized equipment in top shape.

Many manufacturers use the savings from their cost segregation to invest in research and development efforts. This can help advance sustainability initiatives forward, drive innovation, and even lead to production line upgrades for enhanced efficiency.

Turn to Veritax Advisors for Cost Segregation Strategies

As cost segregation specialists, the team here at Veritax Advisors can assist with your tax needs. We're well-versed in the intricacies of the hospitality, retail, and manufacturing industries and have helped businesses in all three secure cost segregation savings.

Contact us today if you're ready to increase depreciation deductions, maximize cash flow, and reduce your income tax liability!