When I pitched the idea for an article about the benefits of upgrading a facility’s lighting, I thought it would be about two things: lower energy bills and better lighting quality.
Then, I spoke with Bruce Heverly and Warren Dazzio at Cost Segregation Services Incorporated (CSSI) and learned about the tremendous tax advantages a company can take when doing a lighting upgrade. What I hadn’t considered was the tax angle, and it turns out, that’s hugely important.
The tax advantages of lighting upgrades many times slip by managers and accountants. Often, companies will install new lighting and throw out their old lights without a second thought.
If you run a self-storage business, or any other, and want to upgrade from old fluorescent or incandescent bulbs to much more cost-effective LED bulbs, don’t make the mistake of throwing out your old lighting.
Every year, the lights in your building depreciate in value, a process that takes up to forty years. Simply throwing them out means you’re literally throwing away something still of value. You won’t be able to sell them to anyone, but you can write off the value from your company’s taxes!
The value of the assets being removed (in this case, the old lighting) goes down on your taxes as a deductible line item. Assuming a tax rate of 30%, that would mean that if your lights have depreciated in value to $10 thousand, you would pay $3 thousand less in taxes.
That alone is a great reason not to throw out the old lights yourself, but they have to go somewhere. Who takes care of that?
The old bulbs contain a mix of chemicals like argon, krypton, mercury, neon, and xenon, not exactly gasses we want back in the environment. The lighting company can make sure they are disposed of safely. Your company saves on taxes and you prevent damage to the environment.
The tax savings don’t stop there. You can also write down the labor removal costs of the old bulbs as an expense. In addition, there is a tax credit for energy efficient buildings.179D energy credits (different from section 179d of the tax code) allows you a credit of $0.60 per square foot of your building when you install LED lights. For a 10 thousand square foot building, that’s a one-time credit of $6 thousand.
If you reduce your building’s energy use by 50% with improvements like new LEDs, air conditioning (HVAC), and others, you can qualify for the $1.8 per square foot energy efficiency tax credit, coming to $18 thousand for a 10 thousand square foot building!
On top of all those tax savings, you can get extra money back to help pay for your LED upgrades. The key phrases to know here are cost segregation (cost seg) and straight-line. With cost seg, you get a chunk of the money up front in the first one to five years. The payout of cost seg is the same as straight-line. The major benefit of cost seg is that your company can make much more money over time by taking the larger, up-front refund and investing it.
Cost seg is when you write off a chunk of your building including the lighting’s future depreciation up front. You get a much bigger tax savings the first year through five years, and the money you save can get invested right back into the business. With straight-line, you simply take the depreciation amount off every year. Also, with cost seg, you still get to put the depreciation on your taxes every year, just at an accelerated amount. So, you still get a yearly depreciation write off . It’s just not as large as it would be in later years as with straight-line.
Plus, by making your business energy efficient, you save on your energy bill every year. You should see your electrical bill from lighting drop by 50% to 60% or more.
Your company’s overall tax goal is to get your taxes as close to zero as possible, and these tax advantages go a long way toward that end. In that first year, you might just about offset the cost of the lighting upgrade!
Cost Segregation Services Inc.
is well-versed in helping companies save as much as possible with an upgrade like this. They even find themselves educating accountants at client businesses on the tax code, making it possible for those companies to take advantage of tax benefits in future years.
As for the quality, light from fluorescent bulbs tends to have a yellow tint while the light from LEDs is brighter and whiter with many colors available. You can even upgrade your building’s lighting without changing the fixtures, as many LED bulbs are universal and compatible with older fixtures. This means you can install cleaner, brighter, more energy efficient lights without changing the look of your facility.
CSSI works with a company called Efficiency Consultants International
(ECI), which will go into a business, remove (and properly dispose of) the old lights, and install new LEDs. Visit the ECI sales pages
for an idea of what sorts of lights and fixtures are available.
Also note that ECI’s LED lights have a 100,000 life, versus the 50,000 life that is more common in the industry. That means that ECI’s lights, on for 8 hours per day, will last for thirty years, or about eleven years at 24 hours per day. ECI’s lights are also UL
and DesignLights Consortium™
(DLC) listed, meaning they have been tested by outside consumer reports companies to ensure they work as listed.
If you’ve been thinking about upgrading your company’s lighting but have reservations about the costs, now you should have a better idea of the balance between initial cost and advantages. All this equates to a much faster payback period and continued energy savings.
CSSI and ECI also give customers a free cost analysis and ten year parts and labor warranty. Members of the StoreLocal cooperative pay about 10% to 20% less than non-member companies, and 5% of the price goes back into the cooperative.
Incandescent and fluorescent bulbs are being phased out in the U.S., so eventually every business will need to upgrade. You can save a lot on your company’s taxes by doing so sooner rather than later. - If you don’t think the company can afford it yet, look into the tax advantages, because you may be mistaken. Given the energy and tax savings you are missing out on - you can’t afford to wait. In any case, it’s worth researching and a great place to start is on the Storelocal website or contact Bruce Heverly our Storelocal CSSI
National representative at email@example.com or 775-846-1729775-846-1729