If your business has equipment that you’re no longer using, you could be paying too much in business personal property tax. Idle equipment identification can reduce your business tax liability.
Sharon H. Lyall, CPA, and staff have helped businesses identify idle equipment assets for more than 20 years. We specialize in helping businesses add to their bottom lines by finding savings on business real and personal property taxes.
LOWER YOUR TAXES WITH IDLE EQUIPMENT IDENTIFICATION
Idle equipment identification should be an essential part of your business personal property tax strategy. In states with business personal property taxes, business owners must pay tax on personal property, which is used to generate income.
EXAMPLES OF BUSINESS PERSONAL PROPERTY INCLUDE:
- Manufacturing equipment
- Furniture
- Computers
- Supplies
But what happens when the equipment is no longer in use? If you’re not using an asset in your business to generate income, it seems unfair to keep paying the same amount of taxes.
The good news is most state and local tax codes allow for businesses to pay less tax on equipment that’s not in use. Assets that you don’t use or intend to use in the near future are often allowed much larger depreciation percentages, reducing the taxes you owe on them.
WHAT IS IDLE EQUIPMENT?
Classifying an asset as “idle” means noting that your business suspended operation of the equipment and has no immediate plans to bring it back into service.
POSSIBLE EXAMPLES OF IDLE EQUIPMENT ASSETS INCLUDE:
- Unused machinery
- Out of date computer equipment
- Equipment, furniture, or computers in storage
IDLE EQUIPMENT IDENTIFICATION SERVICES FROM SHARON H. LYALL, CPA
Idle equipment identification is one part of our asset review. What assets are and how they’re used changes frequently in businesses. Many times these changes aren’t reflected in the records tax assessors use to determine your business personal property tax liability. Removing non-existent or unused items can significantly reduce your company’s property tax burden for the current tax year and many years to come.
4-STEP PROCESS FOR IDLE EQUIPMENT IDENTIFICATION:
- Evaluate Taxable Equipment. We begin by examining your ledger and listings from past years and performing a thorough investigation of your physical assets.
- Remove Ghost Assets and Denote Any Idle Equipment. Our review of your equipment allows for reconciliation of your assets. Your listing of assets needs to match how you’re actually using the equipment in your business. We will identify and correct ghost assets, obsolete equipment, idle equipment, and other issues with your asset listing.
- Tag Equipment. As a separate service, we’ll tag equipment with numbers or barcodes, depending on your preference. Tagging makes it easier to update your asset listing in the future should you remove equipment from service or return an idle asset to active use. You would use this service if you need extra assurance that your business assets are listed correctly in your system.
- Reconcile Asset Inventory. The final step is to reconcile the newly recorded asset inventory with the current asset listing your local tax assessor uses. For ghost assets, you will no longer pay taxes on the asset. For idle equipment, you’ll most likely pay less in taxes on the item because you can claim a higher depreciation percentage.
Frequently Asked Questions
What happens if a business begins using idle equipment?
As long as equipment remains out of service, you can claim accelerated depreciation. You’ll stop claiming extra depreciation upon returning the asset to service or if it is retired, converted to personal use, abandoned, scrapped, or destroyed. You’ll want to create internal controls and infrastructure to ensure your asset listing is correct in the future.
What about equipment that is idle for only part of the year?
This depends on the situation. If you remove an item from service and have no plans to use it in the future, it could be possible to claim accelerated depreciation in the same tax year you stop using it.
But, suppose you operate a seasonal business and will just idle equipment during the off-season. In that case, you likely don’t qualify for an idle equipment depreciation schedule because you have plans to use the equipment again.
Are idle equipment rules the same in every State?
Like all tax regulations, rules about idle equipment can vary at the state or even county level. Sharon H. Lyall, CPA, and staff specialize in working with multiple location businesses such as convenience stores, hotels, and fast food restaurants. We primarily work with companies in North Carolina, South Carolina, Tennessee, Virginia, Georgia, and Florida. But, we can work with businesses anywhere in the United States.
Can you get a refund for idle equipment?
Depending on the jurisdiction, it may be possible to file an amended personal property tax return to receive a refund.