Franchise owners plan for their business and personal income taxes. But many franchisees may pay just as much if not more in property taxes. Business property tax planning for franchise owners ensures you don’t pay more than you owe in real estate or business personal property tax.
Between changes in tax rates to operational changes like adding locations or buying equipment, accurately budgeting for property taxes can be challenging for franchise owners.
To help, we’ve put together some of our best tips, including why planning for business property taxes is essential, top things to consider when planning and budgeting, and how to utilize a CPA to help.
WHY FRANCHISE OWNERS NEED TO PLAN FOR PROPERTY TAXES
Between supply chain issues and skyrocketing inflation, planning and budgeting give most franchise owners a headache. But if business owners learned anything from the last couple of years of COVID-19 chaos, it’s that planning could mean the difference between survival or shutting down. As cash flows tighten and economic uncertainty dominates the headlines, franchise owners need an accurate estimate for what they’ll owe in taxes.
Good planning prevents surprises when your business property taxes come due. When you know what to expect, you can plan and save, so you can pay your property taxes on time and avoid any fees.
PROPERTY TAX PLANNING FOR FRANCHISE OWNERS CHECKLIST
So, where should you start with your property tax planning? Use these four questions to guide your planning and budgeting.
1. WILL YOUR TAX RATES CHANGE NEXT YEAR?
Property tax rates typically stay about the same. Higher bills tend to be due to an increase in the property’s appraisal value. But, bonds for building roads or schools or other local initiatives can raise tax rates.
2. WILL ANY OF YOUR PROPERTIES UNDERGO REVALUATION?
Tax officials calculate businesses’ real estate taxes by estimating the market value of the land and buildings. Some jurisdictions process evaluations annually, while others may only do them every five to eight years. Check if any of the counties where you have a location will do revaluations in the next year. If your appraisal comes back higher, you could see a significant hike in your tax bill.
Property tax planning for franchise owners is about more than making a budget. After a revaluation, business owners have limited time to file an appeal, sometimes as few as 30 days. If you miss that window, you could face higher tax bills for years to come.
Many of the mass appraisal techniques tax officials use the result in high valuations. Since franchise owners tend to own multiple locations, they’re more likely to feel the effects of revaluations. Stay vigilant when you know one of your properties is up for reappraisal. Check market conditions and comparable sales to get an idea of what reasonable market value is. Be ready to file an appeal if you think your tax appraisal is too high.
3. ARE YOU MAKING ANY RENOVATIONS TO YOUR PROPERTIES?
Remodels and upgrades increase the value of your property. In some locations, building modifications can automatically trigger a revaluation from the county. Plan and budget for an increase in your property taxes as a result.
Also, if you purchase equipment as a part of your renovations, the equipment often gets lumped into construction in progress. Many states tax construction in progress at 100% value and no depreciation on business personal property taxes. Part of your tax planning should include reviewing and cleaning up your construction in progress accounts.
4. WILL YOU BUY NEW EQUIPMENT OR STOP USING EXISTING EQUIPMENT?
The business personal property represents a large portion of franchise owners' tax bills. Covering everything from equipment to furniture, some assets in a franchise business require paying personal property tax.
If you plan to buy new equipment, be sure to read our post on how to save money on business equipment. The post includes important information on how to lower your business personal property tax on new equipment.
If you’re removing equipment from service, you also could save money. Idle equipment often qualifies for accelerated depreciation, meaning you’ll pay fewer taxes on idle assets.
GETTING HELP BUDGETING FOR PROPERTY TAXES
The best way for franchise owners to plan for property taxes is to use a CPA specializing in business property taxes. Sharon H. Lyall, CPA, and staff have helped franchisees and other business owners with innovative business property tax solutions for more than 20 years.
We offer tax planning and budgeting services to help franchise owners identify potential tax savings. We’ll help you prepare an accurate budget for property taxes by analyzing your current properties and tax bills to create an informed estimate for future bills.
Another area where we can help franchisees find additional savings is by reviewing your property appraisals. If one of your properties undergoes a revaluation, send us a copy of the assessment. Our experts will analyze it to determine whether you have a strong case for an appeal.
Contact us today to start planning for your business property taxes.