Q: How can I tell if it is better to lease or buy office space?

Conny Cash, a Naples-based professional coach, answers:

The three primary issues are taxes, cash flow and flexibility.

Business lease payments are fully deductible, providing an immediate write-off. With a purchase, you'll have a depreciation deduction, which may or may not be of value to your tax position. You will also be able to deduct mortgage interest and real-estate taxes.

Leasing is usually easier on cash flow because the initial costs are generally limited to a security deposit and a couple of months' rent. When purchasing, you will need the down payment and the closing costs. You also need to compare the cash-flow effect of the projected property carrying costs versus lease payments.

Leasing offers the flexibility of changing office size or location easily at the end of the lease. With ownership, you'll need to sell the property if your space needs change substantially.

There are subjective components to this decision as well, such as whether you want the management responsibilities that go with property ownership. It is important to review how each alternative affects your business plan because this type of overhead expense can have a major impact on the bottom line.

Cash can be reached at Balancing Act at (239) 597-0107.

Q: I have heard that running a drug-free workplace can be beneficial to my business. Can I just send employees for drug tests whenever I suspect that they are using?

Libby Anderson, a Naples-based human resources consultant and trainer, answers:

Running a drug-free workplace has many benefits. Often your worker's compensation rates can be reduced as well as injuries. In addition, drug-free workplaces often experience less absenteeism and higher productivity.

A state statute governs whether you qualify as being drug free. Briefly, the law requires that you have a written policy, communicate all elements of the policy to your employees, and be consistent with your drug testing practices and in compliance with the other regulations of being drug free. In essence, you can't say you are a drug-free workplace if you aren't in compliance with the statute. And if you are randomly sending employees for drug tests without being in compliance with the statute, you are violating the law.

To find out more about the requirements, go to www.myflorida.com and look for information under the worker's compensation section.

Anderson can be reached via e-mail at edahrsvcs@aol.com. Her Web site is www.edahr.com.

Q: I have always understood that real estate used in a business is depreciated over 39 years. A friend recently mentioned that it may be possible to segregate my building into different cost components and depreciate them over a shorter period. Is this true?

Richard Shield, a certified public accountant with Schultz, Chaipel & Co., answers:

Yes. In general, a building is depreciated over 39 years for nonresidential real property and 27.5 years for residential rental property. However, the Tax Court recently ruled that certain structural components such as wiring, plumbing, millwork and machinery may be depreciated separately, using a shorter recovery period. For example, in the Tax Court case, wiring was subject to a five- or seven-year recovery period rather than the 39-year period applied to the building. The IRS has consented to this decision.

To determine which structural components are eligible, the Tax Court applied the same tests developed under prior law for purposes of the investment tax credit. Basically, if the property can be removed without adversely affecting the building's structure or safety and if the item does not relate to the operation and maintenance of the building, it can generally be classified as personal property. However, the burden of proof to support such segregation and faster depreciation is on you. The IRS standards are high in this area; you will need to have some type of cost-segregation study performed by an expert to substantiate the allocation.

If your building was placed in service more than 10 years ago and has already been depreciated assuming a 39-year life for the entire cost, it is possible for you to recoup the deductions that you missed out on in previous years. The IRS has stated that it will permit taxpayers who placed residential or nonresidential property in service after 1986 without allocating costs to change their accounting method and recover deductions for depreciation not taken in previous years. Taxpayers who change their method of accounting under this provision would be entitled to a current deduction for the difference between depreciation actually deducted in previous years and the amount that would have been allowed had certain assets been treated as personal property.

Schultz, Chaipel & Co. can be reached in Fort Myers at (239) 939-5333.