Guidelines and definitions set by any state and county govern property taxes. Municipal laws apply to property tax in the jurisdiction and can vary from one jurisdiction to another. That is why it is crucial to leave these complicated matters to property tax consulting experts. They can help you reduce taxes legally by avoiding and not evading.
What Are The First Steps To Take For Property Tax Audit?
When it comes to a tax audit, you should take the initiative and act proactively. Instead of waiting for the tax notice to be served, you can reach out to the authorities under whose jurisdiction your property falls. It is common for Arkansas and North Carolina to consult third-party auditors regularly.
In a few states, mere personal property tax assessments can lead to an audit. Hence it is advisable to consult your tax expert to spot the audit exposure areas before filing an appeal. When it comes to audit defense, managing your personal property matters properly is one of the first steps you need to take.
Commonly Committed Errors from a Taxpayer’s Viewpoint
Seasoned property tax consulting professionals will advise you against reporting real estate as personal property. You need to avoid committing such an error, which helps you save yourself from the risk of double taxation.
The tax experts know what is classified as real estate in a particular jurisdiction. They will not report such property on a personal property return, thus avoiding overpaying taxes for that specific asset.
As tax administrators for real estate and personal property work in separate divisions, it is easy to commit such errors as information is never exchanged.
Jurisdiction Depreciation Table
It is common for the same county to have multiple jurisdiction depreciation tables. As the first step to reporting personal property involves applying with details of the original acquisition year, along with the acquisition cost, only an experienced tax consultant can guide you to apply under the correct jurisdiction depreciation table.
Local jurisdictions have schedules that keep changing year to year and are different from federal depreciation tables. Applying under an incorrect jurisdiction table is a standard error resulting in an overpayment of personal property tax.
Remember that property tax savings involve taking into account what the asset is used for, its physical life, and other such components before applying the correct information to the appropriate jurisdictional tables.
Disclosing “Ghost” Assets
You may have some capitalized fixed assets that do not exist physically anymore but have been removed from the ledger. These assets have been depreciated for tax purposes and cannot be removed from the ledger.
As the fixed asset ledger is referred to for computing personal property, these ghost assets are automatically taxed. Hence, your tax consultant will institute an appropriate methodology to avoid property tax overpayment, which will occur if the ghost asset is not accounted for correctly.
Inventory Tax Savings
While taxing property, most states include inventory as part of the taxable property. However, the states' reporting standards are not the same and vary based on inventory types and the values, and corresponding reporting periods.
Also, there are several exemptions for inventory turnover to take into consideration. Knowledgeable property tax consulting experts apply the most advantageous methodologies while filing to ensure significant tax savings.
Avoiding Penalties, Overpayment, and Interest
Property tax laws vary from jurisdiction to jurisdiction. To avoid overpayment, penalties, and interest, it is crucial that your auditor understands the requirements and knows how to comply with them. It is necessary to file well within the deadline, which may be calculated on either the received date or the postmarked date.
Another essential thing to keep in mind is the need to report on the correct form, which has to be duly signed and notarized and include all the appropriate attachments. All requirements of exemptions and abatements need to be fulfilled, besides the correct jurisdictional address.
Availing of Exemptions and Abatements
Property tax exemptions and abatements help reduce the personal property tax to be paid. Here again, the requirements may vary based on the jurisdiction. While some states exempt inventory, intangibles, and even software, others may offer exemption for Freeport inventory or investment in pollution control equipment.
Capital investments are entitled to abatements for a specified period and help reduce taxes; PILOT (payment in lieu of taxes) is a good instance. Availing of exemptions and abatements involves following a one-time process. Non-compliance often results in not getting the deserved exemption, leading to monetary loss because of the need to pay additional tax, or a claw-back, attracting a penalty.
Summing it Up
All businesses that own property are liable to pay property tax. If the tax liability is not computed correctly, it often leads to overpayment. In worse cases, non-compliance leads to penalties or seizure of the property.