Bundle Your Savings With Unbundling

Separate tangible from intangible costs and save some tax dough.

One helpful tax strategy that's now gaining in popularity isknown as "unbundling." Here's how it works: When youpurchase new equipment, ask the vendor for an itemized bill thatseparates tangible costs from intangible costs. Intangibles relateto any copyrights, patents or trademarks included in theequipment's purchase price. In a number of jurisdictions,you're only required to pay taxes on tangible personalproperty.

If you've just purchased a new piece of processing machineryfor $200,000, for example, an itemized bill would indicate the costof the hardware as $150,000, the cost of the engineering anddevelopment portion as $25,000, and allocation to overhead as$25,000. If you're in a jurisdiction that doesn't assesstaxes 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 intangiblecosts, check with your tax advisor. You may also need to seekadditional help. "This is such an evolving area that aspecialist who knows the current statutes and regulations ontangible and intangible property in any give jurisdiction is oftennecessary," says Joe Huddleston, a partner with accountingfirm Grant Thornton LLP in Nashville, Tennessee. You can find suchspecialists at any big accounting firm.

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