Filing Taxes for a Self-Storage Business Owner: A Step-by-Step Guide
Boosting Your Bank Balance: Tax Strategies for Self-Storage Facility Owners
Owning a self-storage facility can be a lucrative business, but managing the associated tax obligations is crucial to maximising profits. Here are some key strategies that can help self-storage facility owners minimise their tax burden and boost their cash flow.
Maximising Deductibles
Various costs directly related to the operation of a self-storage facility are deductible. These include property taxes, insurance, utilities, maintenance expenses, marketing/advertising costs, and interest on loans for purchase or development. Depreciation of property and qualifying assets, such as improvements like new roofs or HVAC systems, can also be deducted over time [1].
Record-Keeping and Financial Organisation
Keeping diligent records of business expenses, revenue, and profits is essential for maximising tax savings. Maintaining financial statements like income statements, balance sheets, and profit/loss reports is important for organisation and tax filing. Using accounting software can streamline the record-keeping process [1].
Cost Segregation Studies
A cost segregation study can help self-storage facility owners maximise these deductions by identifying and separating the personal property components and land improvements of a facility that can be depreciated over shorter recovery periods than the building itself. This can result in accelerated depreciation on qualifying assets, such as fencing, resurfacing, and certain land improvements, thereby reducing taxable income earlier in the ownership period and improving cash flow [1][2].
Bonus Depreciation and Section 179 Expensing
Bonus depreciation allows for immediate deductions on certain assets, with an 80% deduction rate for assets put into service between September 28, 2017, and December 31, 2022. This can provide significant upfront tax deductions. However, bonus depreciation decreases to 60% in 2024 and 40% in 2025 [1][2].
Energy-Efficiency Deductions
Exploring energy-efficiency deductions can provide significant benefits for self-storage facilities. Qualifying energy-efficient upgrades, such as interior lighting, HVAC systems, and building envelopes, can offer substantial tax benefits. A maximum deduction of $1.80 per square foot is available for energy-efficient improvements, with partial deductions up to $0.60 per square foot [1].
Major Improvements
Major improvements to a self-storage facility, like roof replacements or significant renovations, can also provide substantial tax benefits. The ratio test is used to differentiate between improvements and regular maintenance or repairs: an expense exceeding 35% of a building system or 40% for roofs is likely considered an improvement [1].
Consulting a Tax Professional
Consulting a tax professional can significantly enhance a self-storage facility owner's tax strategy. They can help identify applicable deductions and ensure compliance. Additionally, a CPA can provide valuable advice on energy-efficiency deductions and cost segregation studies [1].
Business Usage of Storage Units
Storage units can be tax-deductible when used for business operations. Landlord tax write-offs can reduce taxable income, making it essential to keep accurate records of their usage [1].
In conclusion, self-storage facility owners have a range of tax strategies at their disposal to minimise their tax burden and boost their cash flow. From maximising deductibles to exploring energy-efficiency deductions, there are numerous opportunities to optimise tax savings. Consulting a tax professional can help ensure compliance and maximise these benefits.
By Utilizing Business-Related DeductionsIn the context of self-storage facility management, exploiting tax deductions for business-related expenses, such as property taxes, insurance, utilities, and marketing costs, can significantly reduce the tax burden and enhance cash flow.
Evaluating Cost Segregation and Bonus DepreciationFor self-storage facility owners, a cost segregation study or exploring bonus depreciation can offer opportunities to maximize deductions on qualifying assets, like fencing, energy-efficient upgrades, and specific land improvements, thereby minimizing taxable income and potentially improving cash flow.
