Last Minute Business Tax Credits and Deductions Can Make a Big Difference to Your 2006 Bottom Line

Business Wire, April 3, 2007

JENKINTOWN, Pa. -- Before you sign your final 2006 tax return, one regional accounting firm is advising business owners to ask their tax professionals whether they qualify for some lesser-known, previously-unclaimed business tax credits and deductions.

"New IRS regulations, rulings, and court cases are continually being made public, but there is often a several year lag time between the credit or deduction's 'allowable' determination and the lion's share of professional tax preparers proactively educating their clients on the opportunities. Because many of the credits can be taken retroactively from the date of a decision, that can mean a windfall for business owners who know to ask the right questions," explains Michael Solomon, partner-in-charge of Tax Planning and Consulting for Goldenberg Rosenthal, LLP.

Among the credits and deductions Solomon says you should inquire about are:

Research and Development (R&D) Credits -

In 2003, the IRS expanded their definition of the R&D Credit. Once thought of as a credit available only to research-driven biotech and pharmaceutical operations working to discover something new, this credit can now be applied to any physical science business - ranging from engineering to computers to manufacturing to software consulting -- that engages in some form of research, even if only to determine how the business itself may improve its operational processes. While the IRS has its own set of specific requirements for the credit, generally a portion of a company's labor and supply costs will qualify for an R&D credit if the company was engaged in research because it:

* Recognized that some "uncertainty" existed in the development of a business component or process;

* Uncovered one or more alternatives to eliminate the problem, or enhance the existing product or process; and,

* Performed some sort of research that evaluated the alternatives and outcomes.

For more direct information from the IRS, see: http://www.irs.gov/publications/p535/ch07.html#d0e4524 and http://www.irs.gov/taxpros/providers/article/0,,id=167219,00.html

Accrual v. Cash Deductions -

If you and your tax professional are weighing the benefits of reporting on a cash or accrual basis, Solomon suggests, "Companies that have reported income and expenses on an accrual basis can gain value if they consider reporting their prepaid expenses this year on a cash basis. Rather than prepaying expenses that span from one fiscal or calendar year to the next and carrying them on your balance sheet until they are fully amortized, businesses can change their accounting method from accrual to cash and claim the total prepaid expense for the preceding year's and this year's entire expense. That could mean a huge deduction bump for many, but keep in mind:

* Since this switch from accrual to cash can only occur once, the extra deduction is a one-time-only benefit; and,

* If you decide to switch from accrual to cash accounting for your prepaid expenses, then you will need to file IRS form 3115, Application for Change in Accounting Methods."

Goldenberg Rosenthal's partner-in-charge of real estate cost segregation services, Thomas Earley, explains another opportunity that could mean six-figure deductions for some businesses.

Real Estate Cost Segregation -

Companies that own their own buildings and people who own properties for rental might be interested in reconsidering how they have been calculating the depreciation of those properties. Earley says, "If you are calculating your entire building or rental property costs over the 39-year depreciation period used for commercial real estate, you might have been missing out on significant tax savings. But you can make those up now and claim them retroactively if you hire an engineer to segregate your costs by category. For example, if you segregate out the portion of the building costs that are attributed to outside items like landscaping, parking lot, exterior lighting, etc., these can be depreciated over 15 years. Certain interior lighting, carpets, shelving and other decor depreciates over five years as does computer wiring and internal technology."

Earley adds that "While the cost segregation method was accepted by the IRS after a court case several years ago, many real estate owners haven't taken advantage of the cumulative value of the available deduction. That could mean hundreds of thousands of dollars for some."

Both Earley and Solomon say that every situation is different and you should consult your tax professional before making any decisions. They also say that IRS deduction decisions should be discussed in depth because interpreting tax codes, rulings, regulations and cases is extremely complex and confusing. But knowing what to ask your advisor is half the battle and could save you a lot on your 2006 taxes, even in 2007.

Founded in 1919, Goldenberg Rosenthal, LLP (GR) has grown to become one of the largest accounting and business advisory firms in the Philadelphia region, ranked in the Top 50 firms in the country. GR is located in Jenkintown, Pennsylvania. With 20 partners and over 130 staff members, the firm is organized by both service specialty and industry-specific practice groups.