Cost Segregation

Your Real Estate May Entitle You To Substantial Tax Savings

Many Jones & Roth clients who own real estate have benefited from a cost segregation study, which separates cost components of a building into their proper asset classifications and recovery periods.

Cost segregation allows building owners to front-load depreciation deductions into the early years of asset ownership. This has the potential to defer taxes and increase shorter term cash flow

Jones & Roth combines the expertise of tax accountants with engineering and construction experts to deliver an optimized cost segregation solution.

Cost Segregation Team

Jim Christian, CPA

Jim Christian, CPA

Partner and Shareholder


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Nonprofit Q & A: Unrelated Business Income

Nonprofit Q & A: Unrelated Business Income

Q: We are a small 501(c)(3) public charity that helps children develop reading and math skills. For Federal income tax compliance, we only file the e-postcard. We also publish an annual calendar and bi-monthly newsletter about our activities and other newsworthy information relevant to our exempt purpose. 

In these publications, we’re selling advertising space to our sponsors and neighborhood businesses. Our accountant says that we may need to pay Unrelated Business Income tax or at least file a Form 990-T to report the advertising income.

Since we don’t charge tuition for our programs, and this sponsorship revenue helps us buy books and materials for the children, isn’t this revenue related to our exempt purposes?


A: Advertising usually generates unrelated business income (UBI). This is because advertising usually meets all three UBI tests: It is (1) regularly carried on, (2) it is a trade or business, and (3) it is substantially unrelated to the organization’s exempt purpose, aside from the need to generate income. That said, there can be exceptions and exclusions.

For this writing, let’s assume you have determined that your advertising activities meet the first two basic UBI tests mentioned above: It is (1) regularly carried on, and (2) it is a trade or business. Let’s assume it’s also carried on to produce revenue, is conducted with the same frequency and continuity, and is pursued in a manner similar to commercial nonexempt businesses.

Now, let’s explore the rare circumstances wherein an advertising activity can be related to the exempt purpose. To be so related, the revenue-generating activity must contribute importantly to accomplishing the organization’s exempt purpose, other than the organization’s need for acquiring funds to further its exempt purpose.

For example, even though the substantive content of your calendar and newsletters, such as articles, news, and events; may be related to helping children with reading and math, the advertisements are extremely unlikely to significantly further this purpose.

Some Exceptions and Exclusions
Even though the advertisements are part of the publication, which as a whole may be related to the exempt purpose, the advertising must be evaluated separately. If your school has students sell ads as part of its school newspaper publishing curriculum, it is possible that advertising sales could contribute importantly to furthering the exempt purpose of the school.
Is it possible to exclude the income because it is not advertising? To answer this question, we must determine what constitutes advertising. Advertising is any message that promotes or markets a business, service, or product. Advertising includes qualitative or comparative language, price, value or savings information, an endorsement, or an inducement to buy or use the sponsor’s services or products.

With that definition in mind, which published messages do not count as advertising? Mere acknowledgments do not count as advertising. An acknowledgment identifies the sponsor rather than promotes the sponsor’s products or services. The bare recognition of the sponsor may include sponsor logos and slogans, so long as they do not contain comparative or qualitative descriptions or promote the product or service.

Acknowledgments may also include sponsor locations and telephone numbers, value-neutral descriptions of a sponsor’s products or services, sponsor brand or trade names, and product service listings.

Website links can also count as sponsorships, as long as the link leads to the sponsor’s homepage, or to an information page, and not to a page that is a “checkout” page for purchasing goods or services from the advertiser on your organization’s website.

There is still one other exclusion: If all of your organization’s advertising sales are conducted by volunteers, it is possible the advertising revenue would be exempt from unrelated business income tax under a statutory provision.

How to Report the Unrelated Business Income
A Form 990-T must be filed if it’s determined that (1) the advertising is an unrelated business that does not fit an exclusion, and (2) it generates $1,000 or more of gross income in a tax year. If there is net profit, a tax must be paid. Advertising is entered on Schedule J of the 990-T.

This sounds fairly onerous, however, there is some good news: You may deduct all of the direct and appropriate indirect expenses associated with advertising income to offset the gross revenue. This may result in a net loss.

However, if there is still profit after applying the expenses associated with the advertising, you may also allocate any net circulation losses associated with the publication as an expense to further reduce advertising income, but not below zero.

The circulation expenses may bring the net income down to zero, but are not permitted to generate a loss. Thus, if the publication as a whole is running a loss, the advertising will not result in taxable income.

Speak with your tax advisor and provide her with all the facts. She should be able to advise you regarding what is classified as advertising versus acknowledgment, and what might qualify as an exclusion or exception to unrelated business income. If the advertising is taxable, she should be able to tell you how to minimize the tax with proper allocation of expenses.

Depreciation Tips for Small Healthcare Clinics

Depreciation Tips for Small Healthcare Clinics

Growing your practice by investing in new high-technology medical equipment is one of the best strategies for the success of your business. Interest rates are still very low and business loan interest is still 100% tax deductible. The newest technology gives you an advantage over your competition, both in marketing and quality of care.

There’s no denying that investing in new medical equipment is an investment in your success. Taking a big tax deduction on equipment in the year of purchase can be a huge benefit to your practice. Unfortunately, it’s also very common for it to become a five-year financial burden that some practices never recover from. The cookie-cutter approach to accelerated depreciation can hamstring the growth of your practice.

How is this possible? Accountants love to talk about the time value of money, and it’s true that a deduction today is worth more than the same deduction next year. But what happens in three years when you are still paying off the equipment loans, your taxes have gone through the roof, and the loan principal payments are not tax deductible? Will you have had enough growth by then to sustain that kind of cash outflow? Does it make sense to save fifteen cents on the dollar today when you could be in the 35% tax bracket next year?

The answer is maybe. It is not a simple question, and careful consideration and planning is the key. Your personal cash flow needs, business loan payments, projected practice growth, and many other factors all play into determining the best strategy for your new equipment or practice purchase.

Avoid the landmines and make the most of your opportunities by consulting a healthcare-specific tax professional. There are too many variables and too much at risk to use the cookie-cutter approach.

2018 Proposal Tax Reform 2.0

2018 Proposal Tax Reform 2.0

Tax reform 2.0 has been announced. Though the outline lacks details and should be considered a work in progress, it’s worth tracking these developing dynamics. The following is an overview of the proposal from the Committee on Ways & Means regarding the initiatives and objectives of Tax Reform 2.0.

Protecting Middle-Class and Small Business Tax Cuts

Make the individual and small business tax cuts enacted under the Tax Cuts and Jobs Act (TCJA) permanent.

Promoting Family Savings

Retirement Savings: Tax Reform 2.0 contains a range of proposals to help local businesses provide retirement plans to their workers—and to help workers participate in those plans so their retirement years are more secure by helping families start saving earlier and to save more throughout their lives.

  • Create a new Universal Savings Account to offer a fully flexible savings tool for families.
  • Expand 529 Education accounts. Build upon the improvements in the Tax Cuts and Jobs Act so families can also use their education savings to pay for apprenticeship fees to learn a trade, cover the cost of homeschooling, and help pay off student debt.
  • New Baby savings. Allow families to access their own retirement accounts penalty-free for expenses when welcoming a new child into the family, whether by birth or adoption. And allowing families to replenish those accounts in the future.

Spurring New Business Innovation

Growing Brand-New Entrepreneurs. Tax Reform 2.0 would focus on incentives for a start-up business to promote innovation, productivity, and job creation.

  • Expansion of start-up cost write-off
  • Remove barriers to growth

There is a long road ahead before an agreement is reached and a new tax bill introduced. The announcement of Tax Reform 2.0 is in the early stages of development and will be a work in progress. Legislative text and a House Ways and Means Committee markup of the proposal are expected in September.


Nicole McOmber is a Healthcare CPA and Senior Manager in the Eugene office of Jones & Roth CPAs and Business AdvisorsNicole McOmber, CPA is a Healthcare CPA and the leader of the Jones & Roth Healthcare Team. She specializes in practice management, advisory services, and tax & accounting services for medical practices and clinics across Oregon & Southwest Washington.