What is cost segregation (Cost Seg) and how can I use it for my company's benefit?

Cost Segregation, or Cost Seg, is a tool the IRS has given businesses to increase upfront depreciation and encourage investment. In the following pages you will notice how the large upfront amount released to the business through a Cost Segregation Study. A Cost Segregation study takes less than 3 work days of your time to complete. It will improve your net profit substantially.

A Cost Segregation Study will:

• Release years of future depreciation to your company immediately and legally.
• Increase your short term profit margin and hold your long term profit margin steady.
• Enable your company to compete even better in the market place through increased capital investment and increased cash flow.
• Ease the strain on your cash flow and make it easier for you to operate.
• Even decrease Property Taxes in some states.

The following graph is provided for you so that you will be able to see how our Cost Segregation services can help you with your cash flow needs through an increase in Depreciation Expense.



This means that this year and over the coming years, your net profits will increase substantially, helping cash flow to stabilize. Investments and growth projections that would have been out of the question, become feasible through the Cost Seg study we will perform for you.

What companies benefit most from your Cost Segregation Services?

In general, companies with facilities valued over $8 million dollars will benefit the most from these studies. Some industries that we have identified that have particular upside are:

Manufacturing, Hotels & Resorts, Office Buildings, Hospitals and Medical Buildings, Food Processing and Distribution & Warehousing buildings.

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How much of my time will this process take?

Following is a table of the steps involved in the process, the amount of time you can expect to apply to the process and the duration of the process from start to finish.

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What is an outline of the process from start to finish?

Step 1.	Data Collection: Edison's Cost Seg Specialists will provide you with a tax benefit analysis. This initial analysis will give you a very good idea of how much savings you can expect to receive from our Cost Segregation Study, before you get started. To have the necessary information to accomplish your benefit analysis, you will need to provide: A Construction Cost Detail of your facility(ies) and Your Fixed Asset Listing for your facility(ies). If you have any question about either of these documents, please don't hesitate to ask.
Step 2.	Initial Client Meeting: Either in person or via web/teleconference, one of Edison's Cost Managers will meet with you to go over the details of the Cost Segregation Study, the Service Agreement and any of the other audits we provide, that interest you. You will be further informed on the details of the process, talk about the different physical locations company wide, discuss contact information for each site being studied and go over the timeline to finish the study. During this time, you will be able to ask as many questions as you would like, verify assumptions and expectations and get to know your Personal Cost Manager.
Step 3.	On-Site Review:: After the meeting, one of our team of engineers will conduct an onsite tour of each of your properties. This will show them, Òin person,Ó what they have reviewed on your blueprints. They will go over the function of the different components of your buildings and become well-educated about their specific uses.
Step 4.	Off-Site Review:: With the information compiled during the onsite review, the Cost Seg Engineer and CPA team will review the information. They will begin to study, document and segregate an extensive list of all of the building's components that are available for accelerated depreciation.
Step 5.	Findings and Recommendation Report:: As soon as the study is completed, your Edison Cost Manager will meet with you to report to you and review with you the findings of the study. They will answer your questions, educate you further on the cost segregation of your properties and give you an exact dollar amount of accelerated deprecation. In addition to the written report, you will receive an electronic file of the entire study, including pictures, documentation and numbers. As of this final meeting, the accelerated depreciation of your assets will be ready for implementation and fully supported for use with the IRS.

This process takes between 6 and 8 weeks to complete. Time can vary.

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How much do your cost segregation services cost me and when do I pay ?

With Edison, you have the ability to structure your fee in either of two ways.

OPTION 1 - Percentage-Based Commission -

As with all 6 of the audits that Edison provides, the fee for our Cost Segregation Services are performance based. We will do all the work and if we are successful in accelerating your depreciation and increasing your cash flow, we ask you to share the amount recovered, with us. The fee obligation is 10% of the net present value after tax benefit at an 8% discount rate. For example, if the study generated an additional $200,000 in after net present value after tax benefit at the discount rate, the study would cost you $20,000. The fee is due at the time the study is ready to be implemented.

If the study turns out without any acceleration in depreciation that you are able to expense, there is no fee whatsoever.

This method of billing has a number of benefits for you.

• This ensures to you as the customer, that our fee will never outweigh the cash-flow benefit that your company receives.
• This gives us incentive to perform on your behalf. It ties our compensation directly with our ability on your behalf. We make sure we find all possible opportunities your company can implement.
• We risk our people's time upfront, because we are confident in the knowledge our team possesses and our ability to implement this knowledge for the benefit of your cash flow.

OPTION 2 - Fee-Based Commission -

Edison will perform the cost segregation on your physical premise(s) at a rate of $0.0029 (2.9 tenths of a penny) per dollar of construction costs. For example, if the total construction cost of the building our cost segregation services are being performed on is $10 million, then the fee would be $10 million multiplied by .0029 or $29,000. The average cash flow benefit (net present value of tax savings) for that building would be $275,000. For companies with a total building cost of less than $4 million, a minimum of $10,000 will be charged. The fee is due at the time the study is ready to be implemented.

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