Finance

Bundle Your Savings With Unbundling

Separate tangible from intangible costs and save some tax dough.
2 min read
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One helpful tax strategy that's now gaining in popularity is known as "unbundling." Here's how it works: When you purchase new equipment, ask the vendor for an itemized bill that separates tangible costs from intangible costs. Intangibles relate to any copyrights, patents or trademarks included in the equipment's purchase price. In a number of jurisdictions, you're only required to pay taxes on tangible personal property.

If you've just purchased a new piece of processing machinery for $200,000, for example, an itemized bill would indicate the cost of the hardware as $150,000, the cost of the engineering and development portion as $25,000, and allocation to overhead as $25,000. If you're in a jurisdiction that doesn't assess taxes on the intangible costs, you'll only pay tax on $150,000, since the remaining $50,000 is considered intangible property.

To determine how your state treats tangible and intangible costs, check with your tax advisor. You may also need to seek additional help. "This is such an evolving area that a specialist who knows the current statutes and regulations on tangible and intangible property in any give jurisdiction is often necessary," says Joe Huddleston, a partner with accounting firm Grant Thornton LLP in Nashville, Tennessee. You can find such specialists at any big accounting firm.

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