January 8, 2018
For many companies, there comes a time when owners must decide whether to renew a lease, move on to a different one or buy new (or pre-existing) space. In some cases, it’s a relatively easy decision. Maybe you’re happy where you are and feel like such a part of the local community that moving isn’t an option.
But, in other cases, a move can be an important step forward. For example, if a business is looking to cut costs, reducing office space and signing a less expensive lease can generally help the bottom line. Conversely, a growing company might decide to buy property and build new to increase its prestige and visibility. Making the right choice is critical.
Buying office space is clearly a major undertaking. But owning your own building can give you flexibility and tax advantages a lease can’t offer. For instance, you can:
Naturally, there are risks to ownership. For one, you won’t be able to easily pick up and move on. And if you’re structured as a flow-through entity, you’ll need to decide how the owners will share the cost of buying and maintaining the building. Keep in mind that the building need not be owned in the same proportion as the business itself.
There are other matters to consider as well. You’ll have to delegate responsibility for arranging and overseeing activities such as exterior maintenance, cleaning, and paying taxes and insurance. Plus, if you decide to sublet some of your space, you’ll need to wear one more hat — that of a landlord.
Lessees look out
Of course, as you may well know from doing it for a number of years, leasing business space has its downsides, too. Perhaps you’ve dealt with a particularly unresponsive landlord or property management company. You may also have less freedom to change or rearrange space — not to mention ever-increasing rent and the loss of mortgage interest and depreciation tax deductions. If you decide to move, though, it’s easier to leave a rented office than to sell one you own.
Ultimately, it’s a question of net present values. Will the present value of the capital appreciation you ultimately gain when the property is sold be greater than the current cash flow advantage you’d likely have under a lease?
Consider your options
These are just a few of the issues to study as you consider your company’s location and office space heading into a new year. Remember, there may be tax issues not mentioned here or other factors affecting the right decision. Contact us with questions.
For many business owners, September tends to bring a bit of a slowdown. The chaos of getting kids prepared for going back to school has passed, and a focus on saving money tends to kick in as people prepare for the coming holiday spend. Combined, this can often translate into a lull for business owners.
Mattison, Yoder is pleased to announce Julie Cummins has joined our team! Julie is the new face at our front desk, replacing Chris Bailey. Don’t worry Chris is not leaving the firm, she is moving up to a full-time bookkeeping position here!
Julie will be taking on many responsibilities that come along with being at the front desk, such as greeting you when you visit our...
This is a friendly reminder that the Q3 tax estimate payment deadline is coming up fast. Be sure to make your payment by September 15, 2018 to avoid penalties. Currently, penalties for late or no payment average about 4 percent. And wouldn’t you rather keep that money in your pocket?