What is an Asset Review?
If your business operates in a state that collects business personal property tax, your company provides a list of your assets to a local tax assessor to determine how much you owe in taxes. The assets subject to personal property tax are different from real property. Governments also tax businesses for the buildings and land they own.
Business personal property includes any asset required to run the business.
Examples of business personal property assets include:
An asset review is a reporting clean-up to ensure the list you give the county assessor accurately reflects the equipment you use in your business. Sharon H. Lyall, CPA, performs asset reviews for many businesses. The review consists of comparing the tax documents you filed with the county for at least the last two years with your business’s asset list. We’re looking for discrepancies in the documents or items that aren’t categorized correctly. Our specialized knowledge allows us to help 95% of our clients save money.
What We Look for in an Asset Review
An asset review will identify potential tax savings by discovering discrepancies between your ledger and what’s actually in use in your business. Our goal is to look for any ghost assets, obsolete equipment, and idle equipment, as well as discrepancies in the asset listing or items that aren’t categorized properly for the county you file taxes in.
Ghost assets are assets on your ledger and tax bill that no longer exist in your business. When you remove items from service or sell them, businesses often forget to update their records. By tagging all assets as a part of the review, our goal is to make record keeping easier and more accurate.
Common types of equipment that we identify as ghost assets include:
- Furniture that you sold or gave away
- Old machinery, equipment, and tools
- Cash registers and point-of-sale systems
- Vehicles and heavy equipment
- Copiers and fax machines
- Computer equipment
- Office phones
- Company cell phones that you replaced or former employees took
You should remove ghost assets from your asset ledger. You shouldn’t pay taxes on something you no longer own.
Obsolete equipment and assets are like ghost assets, except they still exist. Companies often pay taxes on depreciated assets or those no longer in use. Obsolete equipment also includes items that are functional and in use but are obsolete by market standards. For example, as 5G cell phones and networks become more available, 4G cell phones are obsolete. Your business can still use the 4G cell phones, but they’re not worth as much because they’re technologically obsolete.
When something becomes obsolete, you can sometimes claim an accelerated depreciation schedule to reflect the decrease in the item’s value. Depreciation schedules tax authorities use can vary from state to state or even between counties. You’ll want to check your local regulations and then examine your tax assessment notice.
Idle equipment includes assets that businesses are not using and have no plans to use soon.
Examples of idle equipment assets include:
- Unused machinery or manufacturing equipment
- Equipment, furniture, or computers in storage
- Equipment for sale or disposal
Like obsolete equipment, idle equipment can be subject to accelerated depreciation, so you pay less in taxes on the equipment you’re not using.
Save Money on this Year’s Taxes
Asset review can save businesses money on this year’s taxes and for years to come. Having ghost, obsolete, or idle equipment on your asset ledger leads to a snowball effect in extra taxes. Companies forget to remove or update an asset the year they sell it or remove it from service, then they keep using the same outdated ledger for the next couple of years. Businesses could end up paying taxes on ghost assets for years. Ghost assets are just one of the typical business personal property pitfalls we advise clients to avoid.
An asset review from Sharon H. Lyall, CPA, can reduce your tax bill and make maintaining your asset ledger easier. In some cases, we may be able to file an amended return and get your business a refund on last year’s taxes. In most cases, we can at least save you money in the future. Not to mention that cleaning up records takes a lot of time. Employees don’t always have the time or expertise to do this work along with their other job duties. Our firm typically can do the work for less than it would cost you to pay an employee to do it, and we use our expertise to save you money.
You likely find business personal property taxes complicated. A regular review should be a part of your recording-keeping process. The team at Sharon H. Lyall, CPA, has spent the last two decades helping businesses better understand and manage their real and personal property taxes. Contact us today to learn more about scheduling your company’s asset review.